Melbourne CBD office vacancy rate stable at 16.2% in Q3 | Real Estate Asia

Melbourne CBD office vacancy rate stable at 16.2% in Q3

The city recorded negative net absorption of -9,800 during the quarter.

The Melbourne CBD office market recorded a weak quarterly net absorption, totalling -9,800 sqm, data from JLL revealed. This was predominantly driven by consolidation activity in the financial services sector and new tranches of sublease being brought to market. Headline vacancy remained stable at 16.2%. 

Here’s more from JLL:

The Melbourne Fringe market recorded a strong demand result of 32,900 sqm, whilst the S.E.S recorded a softening of -900 sqm over the quarter. Headline vacancy remained relatively stable across both the Fringe and S.E.S markets, both recording a 0.1 percentage point (ppt) increase to 15.3% and 11.7%, respectively. 

Two projects reach completion in The Fringe

No projects reached practical completion in the CBD market. The Fringe market recorded two projects totalling 42,400 sqm whilst the S.E.S recorded no completions. The largest delivery was CSL’s new 35,000 sqm headquarters at 645-699 Elizabeth Street, Carlton. 

We are currently tracking 11 new projects under construction in the Melbourne CBD (297,000 sqm), with a further 23 in the Fringe (185,900 sqm) and four in the S.E.S (66,600 sqm).

Incentives continue to soften rental performance

CBD prime net effective rents (PNER) fell 1.9% over the quarter to now average AUD 343 per sqm per year (-3.4% y-o-y). Fringe PNER fell 1.2% to AUD 313 per sqm per year (-2.8% y-o-y) as the S.E.S recorded a further decrease of 1.6% to AUD 255 per sqm per year (-4.5% y-o-y). The decline in effective rents was driven by rising incentives.

Prime CBD yields softened 12 bps on the upper end to now reflect a range of 4.75%–6.25%. Fringe prime yields softened 38 bps on the lower end to now range between 5.50%–6.63%, and the S.E.S softened 25 bps on the lower end to range between 5.75%–6.75%. 

Outlook: Demand expected to stall over the near term

CBD leasing demand is expected to soften over the remainder of 2023, as although leasing enquiries remained robust, not many of these enquiries are transacting. The hybrid-work model has continued to drive occupier decision-making and is likely to remain a dominant theme in the office recovery story.  

The rental market is expected to remain stable over the remainder of 2023, as incentives are anticipated to remain in the low-mid 40% region. Prime yields are likely to be nearing their cyclical peak and are expected to remain at these levels over the short-medium term. 

Note: Melbourne Office refers to Melbourne's CBD office market (all grades).

 

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