Office vacancy to plummet

Knight Frank 2

Knight Frank Senior Director, Hamish Sutherland, said white collar employment growth in the Melbourne CBD office market grew by 3.4% over 2015 and forecast to increase by a further 4,000 employees in the coming year coinciding with a 10.8% rise in job advertisements .

“With white collar employment predicted to increase, coupled with the absence of any major developments scheduled for completion until mid-2016, total vacancy in the CBD is forecast to decline to 6.5% by July this year.

“The CBD total vacancy fell from 9.1% to 7.7% over 2015, its lowest level in three years while average prime rents grew at their strongest rate in five years.

“In the 12 months to January, 2016 average prime effective rents increased by 4.3% to $355 per square metre net. Average prime incentives range between 25% and 30% and for the first time in five years average incentives have declined.

“Likewise, secondary effective rents grew at their strongest rate in three years, growing by 5.7% over the year to $246 per square metre net,” he said.

Mr Sutherland added that with vacancy trending down over the next three years, prime net face rent levels are forecast to record average growth of 5% per annum while secondary net face rents will average annual growth of 2.3%.

Knight Frank Research Director, Richard Jenkins, said new CBD office supply totalled 46,000 square metres in the six months to January, 2016 as a result of the completion of 567 Collins Street but the level delivered to the CBD office market was 33% below the average recorded during the past ten years.

“Looking forward, over the next two years 44,223 square metres is expected to be permanently withdrawn, largely for residential development while a further 50,000 square metres is expected to be temporarily withdrawn for refurbishment.

“With only three developments currently under construction, gross supply added to the market will average just 2.1% of total stock per annum, well below the historical annual gross supply average of 3.6%,” he said.

According to Knight Frank Research, investment interest in the Melbourne CBD remained strong in 2015 with sales volumes achieving the second highest annual level on record at $2.86 billion invested across 30 properties.

The research found that while Asian-based buyers bought more assets, US-based groups accounted for 54% of cross border investment into the Melbourne CBD office market as a result of several large transactions.


Read more at Knight Frank


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