CBD office demand hits rents
The Age
Wednesday March 23, 2011
THE next development cycle for new office buildings in Melbourne's CBD has started earlier than expected, sparked by continuing low vacancy rates, rising rents and high tenant demand.Six new projects totalling almost 200,000 square metres are either under construction or about to start, according to Jones Lang LaSalle.The commitment rate is 78 per cent from clients such as the Australian Tax Office, Melbourne Water, NAB, BHP Billiton and Marsh Mercer.But JLL Victorian managing director Andrew Wood said the development cycle would only partly alleviate the tightness in the market.This view was also confirmed by a Colliers International report. Nerida Conisbee, Colliers' national research director, said there was no immediate relief in sight for the city's demand and supply imbalance."No new buildings are due for delivery this year," she said. Only one new building had come on to the market in the past six months.Mr Wood said Melbourne CBD's vacancy rate of 6.3 per cent had tightened from the cyclical peak of 6.6 per cent in the third quarter of 2009.Previous cyclical peaks had occurred at 18.3 per cent (mid-1970s recession), 7.8 per cent (early 1980s recession), 25.8 per cent (early 1990s recession) and 10.2 per cent (post-2000 slowdown).Mr Wood said the shape, size and layout of a building's floor plate were important for tenants.Companies seeking 3000-4000 sq m wanted large floor plates, he said preferably a minimum of 1500 sq m, with minimum intrusion from columns and core areas.He said CBD rents rose 12.4 per cent last year and were tipped to increase by an average of 9.1 per cent from this year to 2013.Colliers also forecast rising rents due to the continuing supply and demand imbalance.Ms Conisbee estimated net effective rents would increase by 12 per cent this year and by 15 per cent in 2013.The Colliers research found prime and secondary-grade properties in the Melbourne CBD recorded 14 per cent and 17 per cent increases in net effective rents respectively last year.Ms Conisbee said high rental growth might create some issues for tenants."Appropriate space may not be available and some may have to consider alternatives such as decentralising to fringe markets, which have higher vacancy rates, such as St Kilda Road or suburban markets," she said."However, at present, suburban markets are also experiencing strong declines in vacancy rates and so they may present limited options as well."In the investment market, Colliers found sentiment towards the Melbourne CBD office market remained positive, which should lead to a firming in yields of 25 basis points this year. Ms Conisbee said yields in the CBD firmed in all property grades in the fourth quarter of last year.Nick Rathgeber, Colliers' international director for institutional investment sales, said activity this year was pushing prime yields under 7 per cent. Secondary yields were now about 8 per cent.Buyers in the Melbourne CBD market were frustrated due to limited supply. "The only way for the current imbalance between demand and supply to be overcome is for buyers to pay significant premiums to owners' book values," he said.Ms Conisbee said investment sales activity was likely to remain strong over the next three years. "Further tightening of yields is likely to continue," she said.Employer confidence remained high and hiring intentions were positive. The finance and insurance sector was set to rebound this year a positive for the market.Ms Conisbee said the rising demand would push down the CBD vacancy rate to 5.2 per cent by January.ON THEMOVEBOURKE JUNCTION NAB CBUS61,000sqm 2013MELBOURNE WATER MAC12,200sqm 2012COLLINSSQUAREATO, WALKERCORP39,630sqm2012COLLINSSQUAREMMC,WALKERCORP41,428sqm2013850 COLLINSSTREETLEND LEASE(AURECON9400SQM)15,500sqm2012171COLLINS STCBUS/CHARTERHALL (BHPB11,844SQM)29,000sqm2013+SOURCE: JONES LANG LASALLE
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