Melbourne CBD to Add 15,000 New Workers

Melbourne’s CBD is still the tightest office market in the country, with net absorption turning negative for the first time in six-and-a-half years.

This coupled with up to 15,000 new office workers expected to move to the CBD and Docklands over the next six months will lead to a big market shift, according to Colliers International’s latest office research and forecast report.

Occupancy declined by 10,432sq m over the six months to January 2020 and strong rental growth was expected to continue with increased pre-commitment levels, employment and demand.

This also helped the real estate in the area in 2019 with transactions including $830 million for 242 Exhibition Street, $1.4 billion for 80 Collins Street and $200.5 million for 31 Queen Street recorded.

Related: Sydney, Melbourne Office Vacancy Still Sub 4 per cent

Colliers International Office Leasing national director Andrew Beasley said limited stock additions and continued demand led to Melbourne becoming the tightest office market in Australia.

“In a turnaround from the previous six months, we are expecting huge net absorption levels in the first half of 2020–at close to 145,000sq m of increased occupancy,” Beasley said.

“There are very few options for tenants in the market, particularly for requirements seeking over 5,000sq m of contiguous space in prime grade buildings.

“This trend is set to continue for the remainder of 2020 until any decent trenches of contiguous backfill hits the market in 2021.”

The amount of office stock added in the last six months was low at 13,069sq m, while large chunks were withdrawn from the market for refurbishment including at 750 Collins Street and 150 Lonsdale Street and 100 Queen Street.

“With high pre-commitment levels for new developments and strong levels of leasing demand for any remaining space, we expect vacancy to remain below 5 per cent for the next three years in Melbourne,” Beasley said.

“A total of 270,000sq m of new office space will be added in the first half of 2020, of which approximately 98 per cent has already been pre-committed or is under offer.

“We expect actual additions to vacant space available to market to be only 60,000sq m—a very small increase in such a high supply environment.”

Given the continuing tight conditions in Melbourne, Colliers expected rental growth of 7.2 per cent and 4.6 per cent for prime and B-grade CBD assets respectively over the coming 12 months, as employment and demand conditions remained very strong.