Melbourne was Australia’s standout office market in the third quarter of 2017, outperforming Sydney’s prime grade market in all aspects.
In CBRE's latest market view, incentive declines accelerated across the southeast CBD office market -- driving effective rental growth during the quarter.
Melbourne recorded its ninth consecutive quarter of positive growth in real rents and recorded quarterly prime net effective rental growth of 6.7 per cent.
Despite the Australian CBD market experiencing easing enquiry levels and a decline in net absorption overall, Melbourne’s office leasing market has been largely supported by strong demand fundamentals.
This included the growth of white collar employment in the CBD by 3.2 per cent in the year to June 2017, and positive net absorption in the year to July 2017, totalling 128,400 square metres – the strongest result since 2008.
[Related reading: Variation in Development Activity to Undercut Office Market Conditions]Melbourne prime incentives fell notably by 180 basis points, and CBRE research associate Felice Spark said the sharp acceleration in the decline of incentives was a key indicator of tightening vacancy and a shift towards a landlord’s market.
“While the other major Australian markets have either remained stable or witnessed some nominal softening, both Sydney and Melbourne have demonstrated an increase in demand and a fall in vacancy which has been a predominant driver of effective rental growth," she said.
Although rent growth was expected to soften when Melbourne’s new development cycle kicks in, CBRE transaction director Andrew Tracey said net absorption and demand would remain strong through to 2021.
“On top of that, Melbourne is for the first time in a generation facing a shortage of quality development sites and following the next round of buildings the market will get very tight," he said.
[Related reading: Melbourne Apartment Market Demand Overshadowed by 2017 Supply]Across the country, Brisbane saw a 1.2 per cent rise in prime net face rents to $628 per square metre, driven by new supply and strengthening occupier demand, while Perth's office market posted the first period of declining vacancy rates since 2012, easing from the 22.2 per cent peak to 21.1 per cent, with premium vacancy declining 16 per cent to 11.7 per cent.
Adelaide's prime grade office incentives were at 36 per cent while secondary grade space incentives held steady at 39 per cent in Q3, while soft occupier demand drove incentive growth by 325bps for prime and 420bps for secondary.
The Canberra office market saw prime net effective rents grow 12.1 per cent over the past 12 months, while prime vacancy also fell to 9.4 per cent. Due to a lack of new supply and the Federal Government’s plans to increase headcount, prime vacancy was forecasted to tighten over the next five years and will be a catalyst for further prime net effective rental growth of 5.5 per cent per annum between 2017-2022.