JONES Lang LaSalle’s director of research and consulting Andrew Ballantyne said Melbourne office rents have started to rise and 24 months of above trend rental growth is expected.
Speaking at the Australian Property Institute Victoria State of the Market conference, Ballantyne declared that the Melbourne office markets are 18 months off the trough as he pointed to evidence of improved demand for space.
In the CBD, 169,400 sqm has been leased and the city fringe saw the take up of 90,800 sqm and in the south east suburbs 22,800 sqm was absorbed in the past year.
This has already seen vacancy rates tightened from the peak, Melbourne CBD vacancies have fallen from the peak of 6.6% to 6.3%. In the city fringe and the SE suburbs, the recovery was more pronounced, vacancies declining from the peak of 12.1% and 9.6% respectively, to 9.5% and 7.9%.
The demand for space is being driven by strong white collar employment, which bounced back strongly in 2010 by nearly 5% and is expected to moderate around 3% over 2011 and 2012.
As result, Melbourne offices are sitting in a comfortable position with rental values having risen in the range of 5% to 10% and capital values have increased 10% to 20%.
Ballantyne said net effective rents are no longer falling, in the CBD where it had declined 14.4% — the market has corrected with gains of 12.4%.
The figures were more positive for city fringe, where rents have risen 13.7% compared (-13.2%) and SE suburbs, the market has flipped from a -6.1% to 6.4%.
Meanwhile Ballantyne said improving demand and a limited space under construction is leading to fewer options for tenants.
According to JLL, in the CBD, there are 20 options for prime space:
· two in the 500 to 1,000 sqm range
· five in the 1,000 to 1,999 sqm
· seven in the 2,000 to 3,999 sqm
· three in the 4,000 to 4,999 sqm
· and three in the 5,000 sqm range
Although there are plenty of options for smaller requirements in the secondary market but not much for 5,000 sqm plus. JLL research shows options available:
· 21 in the 500 to 1,000 sqm range
· 24 in the 1,000 to 1,999 sqm
· 15 in the 2,000 to 3,999 sqm
· two in the 4,000 to 4,999 sqm
· and five in the 5,000 sqm range
The fringe market was also tight with 20 options in St Kilda and 22 in the rest of the fringe. Whilst the suburban market has 47 options but space options of 4,000 sqm plus is very scarce.
Ballantyne is predicting vacancy rates to tighten further by 2012 to 5.2% in the CBD, 10.2% in St Kilda Road and 8.0% in the suburban markets.
Australian Property Journal
