Docklands Office Market Grows As Pre-Commitments Flow

The Docklands commercial precinct continues to grow as its vacancy rate drops and pre-commitments continue to flow into the market.

According to Colliers International’s latest report, Prices soar as offshore investment dominates: Is Australia getting too expensive?, a number of major pre-commitments coupled with the leasing of a significant amount of backfill and sublease space, has occurred in recent months.

Colliers International Associate Director of Research Anneke Thompson said this proved the area was still in demand from CBD core tenants and suburban tenants looking to move into the city.

“Development in the Docklands precinct of Melbourne’s CBD began in 2002 with the construction of NAB’s 60,000sqm Headquarters at 800 Bourke Street, and 14 years later the success of Docklands as a commercial precinct in Melbourne continues,” Ms Thompson said.

“Demonstrating just how successful a year the leasing market in Docklands had in 2015, the vacancy rate has decreased from 7.2 per cent in January 2015, to 5 per cent in January 2016. Net absorption for the year was 67,418sqm and following all the smaller leasing deals in the second half of the year, 16,097sqm of space was leased in the second half of the year alone.

“To put this in perspective, the Western Core – a much larger precinct at 1,598,802sqm compared to 812,499sqm in Docklands – had an increase in vacancy of 13,833sqm.”

Colliers International National Director of Office Leasing Andrew Beasley said the Melbourne pre-commitment market remained strong, despite years of new supply, particularly in Docklands.

“In 2015, Lang Walker’s Collins Square development attracted major tenants such as KPMG, Maddocks and Link Market Services, and late in the year, Mirvac also announced the pre-commitment of Pitcher Partners to kick off 664 Collins Street, the sister building to AGL’s 699 Bourke Street also developed by Mirvac. Lendlease also confirmed the signing of Arup, in addition to its own commitment to anchor 1 Melbourne Quarter intheir new Melbourne Quarter development,” Mr Beasley said.

A number of other major tenant requirements that are active in the market and being courted by a number of Dockland’s developers include Minter Ellison (10,000 sqm), IAG (30,000 sqm to 40,000 sqm), Deloitte (20,000 sqm) and HWT (13,000 sqm).
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“Based on the developments in the pipeline, and the level of pre-commitment activity in the market, we estimate that the majority of commercial development in Docklands should be near completion by the eary to mid 2020’s,” Mr Beasley said. “Although, there will also be some stiff competition with a number of core CBD sites, including Cbus Property’s 447 Collins Street, Mirvac’s 477 Collins Street, QIC’s 80 Collins Street (South) and Brookfield’s 405 Bourke Street. All these sites combined, including Docklands, could still potentially provide approximately 350,000sqm of new supply.

“While the pre-commitment market in Docklands is well known, less well understood is the success of leasing small and medium sized tenancies, which come to the market as either backfill, sublease or leftover space in new, primarily pre-committed developments.

“Cbus Property’s 720 Bourke Street is a good example of small and medium sized tenants being attracted to Docklands. Following Medibank moving in to the building in late 2014, a further 17,000sqm in the building remained for lease. Over 2015, a number of tenants of varying sizes have taken space in the building, leaving only about 1,200sqm of space currently available.

“Tenants who have committed include businesses who were previously located in Collins Street’s eastern core – Chubb Insurance (1,578sqm) and CASA (1,340sqm) – as well as smaller tenants who continue to grow into more space, such as Esuperfund, who originally took 1,623sqm in the building and have now taken an additional 770sqm, for a total tenancy of 2,400sqm. Esuperfund originally started their business in a small, strata suite in Docklands.”