This article is from the Australian Property Journal archive
THE flight-to-quality being seen in the CBD office markets has become readily apparent in Melbourne’s metropolitan, with A-grade vacancies falling by nearly 4% over six months.
According to Colliers’ Melbourne Metro Vacancy Report, A-grade vacancies fell from 16.5% in September 2022 down to 12.9% in March, while B-grade vacancy only reduced a shade to 14.5% and C-grade vacancy increased from 10.5% to 11.4%.
Colliers’ Travis Myerscough said the city fringe is particularly of interest due to its already established amenities surrounding the office buildings, providing a more varied work/life offering where office and lifestyle services seamlessly connect. It means locations such as Collingwood, South Yarra and South Melbourne are attracting businesses and young talent.
“Amenity within and surrounding the office space has become more important than ever for businesses, as buildings and its office space are being utilised differently now compared to pre-pandemic, and we’re no longer just utilising the office and its surround between 9am to 5pm. With more flexibility offered to employees around working arrangements, offices in areas that are activated during many hours of the day have become more desirable,” Myerscough said.
A record-breaking number of office deals and 163,100 sqm was leased in the Melbourne metro office market in 2022, exceeding both Sydney and Brisbane metro office markets. There were 70 deals secured in the fringe and metro markets within the first five months of 2023, representing 42,776 sqm in total leased office space.
A record figure of close to 100,000 sqm of new supply is set to be completed in buildings 5,000 sqm and over in the metro market in 2023, however, a lot of this space has already been committed according to Colliers.
“Other than the one-off hit to demand which occurred over the six months to September 2020, due to Melbourne’s pandemic lockdown, healthy demand in every period since has absorbed a strong pipeline of supply,” said Colliers’ associate director of research, Jodi Birch.
“With unemployment in Victoria low and growth of white-collar jobs above pre-pandemic levels, office demand is expected to strengthen as the flight to quality continues. This should see the majority of new or A-grade stock absorbed over the next 12 months, as tenants upgrade and leave B and C-grade options and compete for the increasingly limited new and A-grade stock available on the market”.
Colliers forecasts an undersupply of stock in the short to medium term, especially in the city fringe market. While there are several projects identified beyond 2024, many have not yet received development approval.
