Melbourne’s full floor CBD office vacancy has fallen to its lowest level since March 2012 leaving tenants seeking contiguous floor space with only 19 prime floor options to choose from, according to the latest Savills research.
Research author, Savills Victorian research manager, Monica Mondkar, said of 1527 prime full floors in the CBD only 175 floors were currently available, the lowest level since the 163 recorded in March 2012.
“The fact that 175 prime floors are available can be misleading in terms of options with only 19 contiguous floors available while single floor options are also limited by just where those floors are – in what building, on what street, in which precinct, and at what end of town,’’ Ms Mondkar said.
The full floor research shows each Premium and A grade building in the city on a floor-by-floor basis highlighting which floors are available for lease, now and in the near future, in each building including those under construction and refurbishment.
Ms Mondkar said available full floor space was at 270,486 square metres in May, down 20 per cent from the 339,022 square metres recorded at the end of December when 220 full floors were available for lease.
Savills’ State Director Victoria – Office Leasing, Mark Rasmussen, said the fall in the number of full floor options was a very good indicator of where the office market was heading.
“Clearly the market is tightening. The key indicator – net absorption – has been growing steadily over the last 12 months and that trend is likely to continue on the back of improving economic conditions, especially in Victoria and New South Wales.
“What has been a concern for landlords is now becoming an issue for tenants as the downward trend limits the number of full floor options available and intensifies competition for available space,’’ Mr Rasmussen said.
He said he expected the overall office vacancy rate to mirror the fall in the number of full floors available when the PCA reports next month providing further evidence of a tightening market.
“We are going to see up to 80,000 square metres of backfill space hit the market later in the year and early next year and this may slow rental growth, however we expect the strong tenant demand to continue.
“The era of 30 per cent incentives is finished and of course that means upward pressure on rents. Tenants considering moving would be well advised to do it sooner than later,’’ Mr Rasmussen said.
He said Savills had leased over 25,000 square metres of full floor prime office space in 2016 including Woods Bagot at 555 Bourke Street (2,100sqm), and Yooralla at 595 Collins Street (2,100sqm) and that the pipeline of transactions for the balance of the year remained strong.