State of the Market: Melbourne

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State of the Market: Melbourne

Last stop on the national Corenet State of the CRE Market panel circuit was Melbourne represented by Jess van Raay of JLL and Cameron Douglas Perrine of CBRE.

Melbourne CBD is a huge office market and only about one A Grade office building smaller than the Sydney CBD. Melbourne’s population is also not far behind. Will Melbourne take the lead on both categories at the same time? And when will that be?Overall vacancy is high and increasing. It is estimated an extra 250,000 m2 of space is to be added to total stock over the next 2 years or an increase of about 5%. Reported sublease vacancy (as a percentage) sits above the other capital cities and many believe the total is higher. This all depends on how and when one counts non-occupied space.

Demand for the city itself and its amenity is never in question. Melbourne has the best food and beverage choice in the country and after business hours the CBD bustles. But during the day, office participation rates are lower than the other capital cities.

This presents an interesting quandary on how to fill all of that vacant space.

The size, structure, amenity and mix of the CBD gives Melbourne a unique opportunity to lead the national “repurposing” debate and cycle. Will there be the required financial adjustment to allow that repurpose cycle to really take off? Does St Kilda Road become a tree lined apartment corridor and the office users migrate to the CBD whilst the commercial terms are the most competitive in the country? The opportunity is there.

The general statistics for the Melbourne CBD office market according to the PCA are:

  • Stock 5,170,349 m2 or almost 20% of the total Australian Office market
  • Vacancy is 16.4% of which 2.0% is sublease
  • Absorption: average 6 month net absorption in the 5 years to January 2020 was positive 46,071 m2
  • Absorption: average 6 month net absorption in the 4 years since January 2020 has been negative 17,517 m2

Thank you to Corenet Global for the privilege of moderating these events. It is great to listen to and learn from market participants before, during, and after the panels. Hopefully the audience at each of the panels has learnt as much as I have.

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