Resilience in Melbourne's Metro Office Market

Key Points: 

Vacancy: Vacancy across Melbourne’s City Fringe and Inner East metro markets has remained resilient despite the headwinds faced in the office sector. CBRE Research data suggests City Fringe and Inner East vacancy as of Q1 2024 is currently at 16.2% and 13.9% respectively. These levels are below the current total CBD vacancy.

Supply: Expected supply levels across Melbourne’s City Fringe and Inner East remain relatively subdued. Currently c.115,000sqm in under construction office developments across both precincts represents a 5.5% increase in total stock. With an 80% average leased rate in recent office completions, CBRE Research expects these new developments to see strong leasing levels and pre-commitments.

Demand: Given shifting preferences amongst workers and occupiers, tenant demand has become moderately concentrated in smaller, fitted spaces across the metro market. This, combined with a high overlap between CBD and Fringe tenant preferences, suggest strong demand fundamentals for these metro precincts over the coming years.

Outlook: Ever-evolving dynamics between strong macroeconomic demand factors and limited supply offerings with unique offerings suggest vacancy levels across premium metro stock to decline, with strong rental growth expected in select assets.