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Glut of Office Space to Hit Melbourne CBD

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Up to 100,000sq m of office space in Melbourne will become available over the course of the year as the impact of Covid-19 continues to weigh on the commercial sector, consultancy m3property says.

Business uncertainty flowing from the pandemic—especially in Melbourne, where a new lockdown has been decreed—has escalated vacancy in what had already been expected to be a softening leasing market.

According to the latest report from the national valuation firm, total vacant space available for occupancy over the next three years will be hit 235,000sq m, including new and backfill space.

Only 32,551sq m is expected to be available in 2020 with the bulk— more than 91,000sq m—expected to hit the market in 2021, and a further 66,350sq m in 2022.

▲ Dexus recently completed its latest tower on Collins Street, comprising a 38-level office tower spanning up to 43,000sq m of office space and a 255-room hotel.
▲ Dexus recently completed its latest tower on Collins Street, comprising a 38-level office tower spanning up to 43,000sq m of office space and a 255-room hotel.


The report said that while the market had already been hit hard by the pandemic, with many tenants delaying new requirements, it is new development space already under construction that will be the key upward driver of vacancy over the next six months.

The rising the availability of stock has also been driven by rising headcount reductions with Melbourne's business services sector, the second largest occupier of office space in the city's CBD, losing 7,200 jobs since mid March.

“There seems little doubt that employers would have faced the unenviable task of letting staff go without JobKeeper support and so the decision to prolong the package is pretty much a game changer, you might say, at least in the short term,” m3property commercial director Gary Longden said.

“In terms of vacancy it now seems more likely that we will see a much sharper upward trend over the next two years than we will see this year.”

Nationally, the CBD office market vacancy rate increased by 1.8 percentage points from 8.4 per cent to 10.2 per cent in the second quarter of 2020.

The situation in Melbourne is more dramatic yet, where the vacancy rate has more than doubled from 3.4 per cent to 7.7 per cent.


Backfill space avaliablity

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^ Source: M3 Property

M3property national research director Amita Mehra said tenants requiring space in the sub 3,000sq m range looked likely to punch above their weight in terms of their impact on the market’s fortunes with the cohort responsible for the majority of tenant enquiries that had been put on hold indefinitely.

“The indecision in that sector of the market may have a more profound short-term impact than those tenants with larger leasing requirements who, of necessity, need to plan much farther ahead,” Mehra said.

“We expect requirements for space less than 3,000sq m to be on hold for as much as 12-18 months with a potential increase in the probability of tenants exercising options over their existing leases.”

Office stocks across Melbourne also expected to be hit by further negative sentiment as case numbers spike, despite rent collections for the last three months running at over 90 per cent.

Leasing inquiry also remains quiet across the Melbourne CBD from a very low base as the grapples with new lockdown measures.

The renewed lockdowns come amid intensifying debate about more permanent changes to managing staff and offices as companies deal with the post-Covid-19 world.

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Article originally posted at: https://theurbandeveloper.com/articles/melbourne-office-vacancy-covid