This article is from the Australian Property Journal archive
STRONG sales activity in Melbourne’s metropolitan office market will continue as investors hone in on fully leased and quality assets, according to Colliers International’s Melbourne Metropolitan Research & Forecast Report.
Colliers International investment services & office leasing national director
Rob Joyes said Melbourne’s metropolitan office markets had performed consistently over the last six months, driven by stable tenant demand and limited new supply.
There were 12 transactions in excess of $5 million in the six months to September, totalling $151 million. Seven of those were realised in the city fringe region.
The Melbourne-wide return was a significant rise on the preceding six-month period, which featured only four transactions totalling $28 million.
“Following a relatively slow start to the year, investment sales activity has improved significantly,” he added.
Joyes said private investors, owner occupiers and syndicates were returning to the Melbourne metropolitan office market, with private investors the most prominent players of the past six months.
“We expect this activity to continue as investors focus on fully leased quality assets. On the flip-side, average yields have softened by 0.25% over the past six months, but we expect they will remain stable over the next six months,”
Yields softened in all of the city fringe, inner-east, outer-east and north and west markets, and remained stable in the south-east.
Average capital values in the city fringe declined slightly to between $3,000 per sqm and $5,000 per sqm, as they did in the inner-east to between $3,000 per sqm and $4,750 per sqm.
Elsewhere, capital values were stable. They held in the outer-east from $2,500 per sqm and $3,750 per sqm, in the south-east from $2,000 per sqm to $3,000 per sqm, and in the north and west between $2,250 per sqm and $3,500 per sqm.
Vacancy rates increased from 6.2% in March to 7.1% in September, owing largely to a significant amount of backfill space entering the market.
Colliers International research analyst Amita Mehrotra said four buildings had been completed in the last six months, resulting in an additional 13,000 sqm of space coming online.
“Tenant demand has remained consistent and this has led to average net face rents increasing by 3.4% over the past six months,” she said.
The city fringe market led rental growth, with a 7.7% increase in rents over the six months to September, with average net face rents between $320 per sqm and $380 per sqm.
The inner-east also experienced an increase, to between $310 per sqm and $355 per sqm, with further rises tipped over the next six months. It was the same story in the outer-east, rising to between $235 per sqm and $310 per sqm, with more growth expected.
There was a slight rise in the north and west markets to between $205 per sqm and $260 per sqm, whilst rents were stable in the South-east, holding from $220 per sqm to $260 per sqm.
Lease renewal activity remained strong, with only 34,300 sqm of office space under construction in Melbourne’s metropolitan market, 68% of which is pre-committed.
Joyes said there was still some resistance for committing to the new projects, primarily due to the funding constraints.
“We are forecasting improving tenant demand and limited new supply will keep vacancy rates stable over the next six months,” he said.
Major tenants moving into quality buildings resulted in positive net absorption of 8,153 sqm across the market.
Although the city fringe experienced rent increases, the vacancy rate actually rose from 5.5% to 7.8% in same time period. This was due to 25,000 sqm of backfill space coming online, resulting in a negative net absorption of 18,961 sqm.
There was also a vacancy rise in the inner-east, from 5% to 6.9%, and a negative net absorption figure of 7,568 sqm.
No new supply in the south-east market meant a reduction in the vacancy rate to 4.9% and positive net absorption of 7,123 sqm, likewise in the north and west, with vacancies down slightly to 5.9% and positive net absorption of 627 sqm.
Vacancy fell slightly also in the outer-east to 7.9%, but this remained the highest rate in the market. A total of 54,300 sqm is currently under construction and due for completion between now and 2014, with approximately 80% of that area pre-committed.
Joyes said due to tenant demand being relatively weak, pressure was increasing on incentives to attract tenants into buildings.
Incentives rose by an average of 5% in the city fringe and were tipped to remain stable over the next six months. In the inner-east, outer-east and south-east incentives were stable and expected to remain so in the coming months.
Property Review
