Net absorption doubles the average
2018’s net absorption doubled the long run average as businesses expanded and looked to secure quality space in order to attract and retain talent. Annual net absorption of 135,290 sqm was underpinned by strong population growth, low interest rates and positive business conditions.
Vacancy headed towards record lows
In January the PCA recorded the Melbourne CBD vacancy rate at just 3.2% and it is expected to drop below 3%, a new record, in the near term. Any space that does become available is often quickly secured by internal tenant expansions making it hard for new entrants and external firms to secure expansion space. As a result of the tight conditions, even less desirable office spaces have been securing tenants on landlord favourable terms.
Double digit rent growth continues
Rent growth continued in Q1 2019. On a net effective basis Prime Grade rents grew 11% year-on-year (YoY) to $460 per sqm per annum and B-Grade rents grew 18% YoY to $390 per sqm per annum. The low vacancy rate has prompted landlords to further reduce incentives: Prime Grade net incentives compressed to 25%, down from 28% a year ago, while B-Grade incentives declined to 26% from 28% a year ago.