Melbourne is now the largest Australian city in terms of commercial office space, having breached the 5 million square metre milestone, according to figures compiled by JLL.
A recent wave of new supply totalling 314,000sq m of premium and A-grade office space has now propelled the city beyond Sydney, hitting a new stock total of 5.1 million square metres.
“The most significant contribution to this growth has been Docklands as a new CBD precinct,” JLL Victoria senior research director Annabel McFarlane said.
“[Both areas have] delivered just over 1 million square metres of new office stock and pushing Melbourne to now Australia’s largest CBD office market, just larger than Sydney’s CBD office market.”
Among the recent completions adding to office space were landmark developments such as Cbus Property and Keppel REIT’s 65,000sq m Victoria Police Centre at 311 Spencer Street, Lendlease’s 46,350sq m Two Melbourne Quarter tower at 697 Collins Street and Dexus’ 42,960sq m 80 Collins Street.
Other projects completed in the Melbourne CBD earlier this year include Mirvac and Suntec REIT’s 56,584sq m Olderfleet building at 477 Collins Street, Charter Hall’s 55,000sq m Wesley Place at 130 Lonsdale Street and Cbus Property and ISPT’s 47,517sq m Collins Arch at 447 Collins Street.
The final figure also took into account 228,040sq m of Southbank Riverside office stock, across the Yarra, which JLL classified as part of the CBD.
Sydney and Melbourne; total CBD office stock
^ JLL Research, July 2020
According to JLL, while a large amount of supply is being delivered to the market, there is very little vacancy, with 94 per cent of the 313,700sq m office stock being delivered in 2020 already pre-committed.
Despite this, the latest stage-four restrictions have pushed its CBD vacancy rate from a February rate of a 3.2 per cent to 7.7 per cent as of the end of June.
JLL is expecting this will peak at more than 12 per cent next year as major corporate tenants consider whether or not to give up space permanently, with more staff expected to work from home more often.
Melbourne’s prime grade vacancy is expected to rise to around 5 per cent by mid-2021, but now it may top 6 per cent.
Across the CBD overall, foot traffic dropped by 90 per cent during the first weeks of restrictions earlier this year, with the latest rollout of lockdown measures expected to keep Melbourne's core quiet.
“This rapid rise is testament to Melbourne’s balanced economic drivers and will result in an increase of national and global investment capital seeking a foothold or looking to expand their portfolios in the city,” JLL Victoria managing director Craig Shute said.
“We are confident Melbourne will rebound relatively strongly as we recover from the current Covid-19 restrictions and re-open for business.”
While the course of the pandemic remains uncertain, tenants continue to explore new options, with some seeing an opportunity to pick up increased floor space at lower prices.
Collectively Westpac, Australia Post and the Commonwealth Bank are in the market for about 100,000sq m in Sydney and Melbourne.
Westpac began its search for 40,000sq m late last year while the Commonwealth Bank is in the market for 18,000sq m, with staff currently located at 357 Collins Street in Lang Walker’s Mercer building.
Australia Post is on the hunt for 40,000sq m in Melbourne and is actively reconsidering its head lease at 111 Bourke Street, a building owned by Brookfield Asset Management.
Also in the marketplace is the state government’s Victorian Civil and Administrative Tribunal, which needs a new 20,000sq m home.