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Melbourne’s Fringe office market booming

Property Markets / Planning, Zoning, Infrastructure

Australia / Melbourne

Sep 10 2018

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Nearly quarter of a million square metres of new office space is on the way in Melbourne’s fringe office market as several factors including population growth, cheaper rents and first rate amenity are driving blossoming demand with overall vacancy now at a low 5.8 per cent, according to Cushman & Wakefield.

National Director Research, Tony Crabb, said 11 new projects would deliver nearly 100,000 square metres to the rapidly growing market over the next three years while a further 131,337 square metres was either in the application process or had received approval but was awaiting pre-commitment.

Mr Crabb said with stock now at more than 860,000 square metres the magic million was going to come a lot quicker than pundits may have imagined just a few years ago.    

``This is an extraordinary amount of activity, but given this city’s current and projected population growth it is not so surprising. What has been surprising is the rapid rate at which tenants have taken up opportunities and the rents they have been willing to pay to get into this market,’’ Mr Crabb said.

The CBD Fringe and Inner East office market - North Melbourne, Carlton, Fitzroy, Abbotsford, Richmond, Port Melbourne, South Melbourne, Burnley, Hawthorn, East Hawthorn, and Kew - contains 862,111 square metres of space, including 598,522 square metres of prime space and just 258,068 square metres of secondary space reflecting the relatively new nature of the location as an office destination. 

Mr Crabb said key demand drivers included close proximity to the CBD, transport links, availability of parking and the amenity – retail, food and beverage outlets, parks, gardens, bike paths and walking trails.

He said the market contained a significant amount of affordable industrial land which had helped new projects stack up for hungry developers looking for alternatives to a troubled apartment market.
``Developers have been able to make construction stack up and at the same time offer affordable rents to a growing number of tenants. Indeed a significant amount of industrial zoned land remains and that means we are going to see increasing pressure to rezone that land as demand continues to  grow and current uses become uneconomic for landlords,’’ Mr Crabb said.     

The research found overall vacancy registered 5.8 per cent with secondary vacancy higher at 8.5 per cent and prime vacancy at just 4.6 per cent.

Mr Crabb said net face pre-commitment rents were in the order of $500 to $600 per square metre per annum, reflecting location, scale and finishes, while net face rents for existing premises were in the order of $425 per square metre per annum with outgoings of approximately $125 per square metre, while incentives were in the range of 15 to 25 per cent. 

He said investment yields had predictably tightened to range from 6 to 7 per cent while capital values now fall within a range of $6000 to $7000 a square metre.

 

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