AN ANALYSIS of the central Melbourne office market has highlighted the importance of Docklands, which has taken up the slack to offset a lean construction period in the CBD.
Docklands has been the main focus of supply in the Melbourne CBD over the past five years, providing about 750,000 square metres of new and refurbished office space, according to CBRE.
"It is set to dominate again over the next five years, accounting for 61 per cent of gross completions over the period," said CBRE's senior manager, global research and consulting, Luke Nixon, in his Australian CBD Office Market Review for the first quarter of this financial year.
Of important new projects under way or committed, Docklands will host buildings for NAB, Victoria Police, Aurecon, Marsh Mercer and the Australian Taxation Office.
Mr Nixon said in sharp contrast to 2010, when most of these pre-commitments were made, minimal new commitments were made last year. Victoria Police, with 298 Spencer Street in Docklands, was one large tenant to commit to space, as was Westpac, which planned to go to Scots Church at 150 Collins Street.
"Other large tenants currently in the market include Medibank, Esanda, CBA, KPMG and Corrs Chambers Westgarth," he said.
Mr Nixon said the CBD vacancy rate was tipped to rise this year from the January level of 5.3 per cent, with net additions to stock rising to about 84,600 sq m.
The ATO would also release backfill space on to the market at La Trobe Street and Casselden Place, while quite strong net absorption would stop the vacancy rate blowing out.
The vacancy rate would rise again once the new NAB and Marsh Mercer buildings were built, but moderately strong demand would keep it in check. Its lowest point this year would be 6.1 per cent.
Mr Nixon said the poor sentiment in the global economy was stymying action. On the back of this and rising vacancies, rental growth would be moderate over the next few years before picking up in 2014 when vacancies fell again.
"The outlook for property markets remains uncertain as long as the sovereign debt issues in Europe remain," he said. "Fundamentals remain solid, however, and this bodes well for a return to strong growth in property markets once the issues in Europe are solved."
Office sales in the Melbourne CBD last year were about $1.1 billion, accounting for 15 per cent of national office sales. Mr Nixon said buyer interest would continue this year due to the prospect of income growth and a comparatively affordable capital value per square metre compared to other major cities.
The biggest transactions in the second half of last year included 452 Flinders Street to Dexus Property Fund ($201.5 million).
Frequently Asked Questions about this Article…
What role has Docklands played in Melbourne's office supply over the past five years?
Docklands has been the main focus of supply in the Melbourne CBD, delivering about 750,000 square metres of new and refurbished office space over the past five years. CBRE says Docklands is set to dominate again, accounting for roughly 61% of gross completions over the next five years.
Which major tenants and new office projects are committed to Docklands?
Several high‑profile tenants and projects are under way or committed in Docklands, including buildings for NAB, Victoria Police (notably 298 Spencer Street), Aurecon, Marsh Mercer and the Australian Taxation Office. The article also notes Westpac planned space at Scots Church (150 Collins Street) and other large tenants active in the market such as Medibank, Esanda, CBA, KPMG and Corrs Chambers Westgarth.
How is the Melbourne CBD vacancy rate expected to change and what new stock is coming online?
CBRE reported the CBD vacancy rate was 5.3% in January and tipped it to rise this year as about 84,600 square metres of new stock is added. The ATO is also expected to release backfill space at La Trobe Street and Casselden Place, and moderately strong net absorption could help limit vacancy increases.
Will new NAB and Marsh Mercer buildings affect rents and vacancy in Melbourne CBD?
Yes. CBRE said vacancy would rise again once the new NAB and Marsh Mercer buildings are completed, though moderately strong demand should keep increases in check. Rental growth is expected to be moderate over the next few years before picking up again in 2014 as vacancies fall.
How do global economic issues influence the Melbourne office market outlook?
CBRE noted that poor sentiment in the global economy—particularly sovereign debt issues in Europe—was stymying action and creating uncertainty for property markets. However, fundamentals in Melbourne’s office market were described as solid, which could support a return to stronger growth once global issues are resolved.
How large was Melbourne CBD office sales activity last year and how did it compare nationally?
Office sales in the Melbourne CBD last year were about $1.1 billion, which accounted for roughly 15% of national office sales, according to the article.
What was one of the biggest recent CBD office transactions mentioned?
One of the biggest transactions in the second half of last year was 452 Flinders Street, purchased by Dexus Property Fund for $201.5 million.
What should everyday investors watch in the Melbourne CBD office market right now?
Everyday investors should keep an eye on the Docklands supply pipeline (given its large share of upcoming completions), major tenant pre‑commitments (NAB, ATO, Victoria Police and others), changes in the CBD vacancy rate as new stock arrives, net absorption trends, and broader global economic risks—especially European sovereign debt issues—that can influence rental growth and investment sentiment.
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