Melbourne CBD Office Market Report - Vol. 5, October 2024

Fitzroys Office Market Report Vol.5 October 2024

Supply The Melbourne CBD office market increased by 67,497sqm

As at July 2024, A-Grade space accounts for almost half

over the first half of 2024 now totalling 5.23 million square

of all office space across the Melbourne CBD. Reflecting

metres, a record high. The Melbourne CBD office is now

the evolving demand of tenants over the past 10 years,

Australia’s largest office market for the first time in 25

Premium-grade office space has grown the most in the

years, having grown by more than one million square

Melbourne CBD office increasing by 551,500 square

metres over the past 12 years.

metres.

The only addition to the CBD office market in 2024 was

There are seven (7) new developments which are under

the completion of National Pension Service of Korea’s

construction or have begun siteworks. Looking ahead

693 Collins Street, Docklands which added 69,000 square

through to 2026, the pipeline of new supply is expected

metres. In contrast, 1,503sqm was withdrawn through

to deliver almost 200,000sqm of new and refurbished

minor refurbishments.

space across the Melbourne CBD, around half the long-

The Western precinct continues to hold the most office space in the Melbourne CBD with 33% followed by the Docklands which comprises 1.2 million square metres having increased by almost 75% over the past 10 years.

term average. With the constrained development pipeline, the location of the new supply is relatively evenly spread with new stock being delivered in the Western, Civic and Docklands precincts.

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Pre-commitments Of the space that is under construction, pre-commitment levels remain modest with currently 34% pre-leased. New development activity is projected to remain subdued for the medium term, adversely impacted by the elevated high vacancy rates and cost of construction. Pre-leasing activity is anticipated to increase with attractive leasing terms

Beyond those offices currently under construction, there are a number of projects at various stages of development approval proposed for the Melbourne CBD office market including: DEXUS’ 60 Collins Street (42,182sqm), Stage 2 of Charter Hall’s 555 Collins Street (35,000sqm) and Hines’ development at 600 Collins Street (60,000sqm).

available for lease occupiers.

CBD Projects Under Construction / Siteworks

Address

Type

Major Tenant Commitments

Total NLA (sqm)

Completion

130 Little Collins Street, Melbourne

New Development

Strata Development

9,600

Q3 2024

415 Flinders Lane, Melbourne

Full Refurbishment

n/a

6,000

Q4 2024

800 Collins Street, Docklands

Full Refurbishment

Dept. Defence

28,650

Q2 2025

51 Flinders Lane, Melbourne

New Development

WPP

29,000

Q4 2025

7 Spencer Street, Melbourne

New Development

Work Club

45,500

Q4 2025

25 Swanston Street, Melbourne

New Development

16,000

Q3 2026

435 Bourke Street Melbourne

New Development

62,000

Q4 2026

CBA, Baker & McKenzie, Uni Super

Source: Property Council of Australia/Fitzroys

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Demand Although net absorption in the Melbourne CBD office market

Victoria’s employment continues to increase, reaching an

remains negative, green shoots of recovery are emerging with

all-time high in July 2024, having increased by 121,353 new

improved tenant enquiry levels.

jobs over the past 12 months. Reflecting the improving labour

According to the PCA, the Melbourne CBD office market recorded negative net absorption of 15,435sqm in the six months to July 2024, the best result in two years. In comparison, the 10-year average half-year net absorption level for the Melbourne CBD office market is 16,600sqm.

While the Melbourne CBD office market has recorded negative net absorption over the past three years, it obscures the clear “flight to quality” with tenants pursuing higher quality office accommodation encouraged by the attractive terms on offer.

In the six months to July 2024, Premium-grade offices outperformed all other grades in the Melbourne CBD with 12,304sqm absorbed. In contrast, A-grade, B-grade and C-grade

market of Victoria, the State’s unemployment rate remains at a low rate of 3.3% as at July 2024. Looking ahead, Victoria’s employment is projected to increase further through 2024, boosting the need for office space.

Over the six months to July 2024, the Civic precinct recorded net absorption of 8,836sqm boosted by strong uptake in A-grade and B-grade stock. Other precincts to record solid absorption were North Eastern with 5,895sqm absorbed and Eastern Core with 3,352sqm taken up over the first half of 2024. In contrast, Flagstaff, Eastern, Western, Spencer and the Docklands precincts all recorded negative net absorption over the six months to July 2024.

offices all recorded negative net absorption in the six months to July 2024.

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Tenant Enquiry CBD enquiry levels remained healthy for groups wanting offices

Larger corporate occupiers have been more active through 2024

up to 300sqm. Spec suites and turn-key solutions are favoured

as businesses now have more knowledge around the numbers

as they offer new fit outs with compelling financial lease terms.

of staff working from the office on an on-going basis.

Companies are keen to attract their staff back into the office and a brand new fit out is a key factor in this decision making process.

Increasingly tenants are considering CBD due to the superior accessibility, new Metro Tunnel network coming on line during 2025 and the compelling lease terms and incentives available.

Remodelled fit outs and "2nd Gen" fit outs are also leasing well. Landlords who embark on cosmetic upgrades and improvements to the efficiency of their existing fit outs are being rewarded with securing tenants. These options are very attractive for tenants as they can use the incentive to offset rent rather than use as capital towards fit out works.

Tenant enquiry for Melbourne CBD office accommodation remains diverse with demand for office space led by Professional Services (42%) followed by Finance & Insurance (21%) and IT & Telecommunications (15%). Other sectors active in the Melbourne CBD office market over the past 12 months have been the Government and the Education sectors.

Clear space is slower to lease as the incentive is almost totally attributed to fit out cost and not to rental abatement. With total lease cost being a defining factor, Landlord contribution to works outside of the incentive is keenly sought after.

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Recent CBD Leasing Transactions Address

Grade

Tenant

NLA (sqm)

111 Bourke Street, Melbourne

A

EY

20,000

161 Collins Street, Melbourne

A

Work Places

3,867

120 Collins Street, Melbourne

Premium

RSM Group

3,000

500 Bourke Street, Melbourne

A

VLSBC

2,711

215 Spring Street, Melbourne

A

Dept of Industry & Resources

2,500

440 Collins Street, Melbourne

B

Tank Stream

2,358

565 Bourke Street, Melbourne

B

Gray Puksand

1,290

271 Collins Street, Melbourne

Creative

EasyGo

1,100

Queen & Collins Street, Melbourne

Premium

Snowflake

915

440 Collins Street, Melbourne

B

Uber

784

300 Flinders Street, Melbourne

B

Collective Engineering

727

300 Flinders Street, Melbourne

B

Halaxy

702

440 Collins Street, Melbourne

B

Verizon

644

440 Collins Street, Melbourne

B

Quantexa

404

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Vacancy Despite the limited additions to the Melbourne CBD office

Melbourne’s vacancy is higher than all other markets with

market, the total vacancy rate continued to increase as tenants

Sydney’s CBD vacancy rate sitting at 11.6% and Brisbane at 9.5%.

consolidated their offices. According to the Property Council, the

Overall, the total Australian CBD office vacancy increased to

total Melbourne CBD office vacancy rate increased to 18.0% as at

13.6% as at July 2024, the highest rate since 1996. Outside of the

July 2024, its highest rate since 1997.

CBD office markets, the overall vacancy rate of the Australian non-CBD office markets decreased to 17.2%, although remains above its 10-year average.

Vacancy by Grade The vacancy rate of all grades within the Melbourne CBD office

its highest rate since 1993 with the A-grade office vacancy

market increased over the six months to July 2024. Despite the

rate increasing to 18%. Similarly, the B-grade office vacancy

trend of tenants to upgrade their office accommodation,

rates increased to 22.9%, a 30-year high.

the vacancy rate of Premium space increased to 16.1%,

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Vacancy Sub-lease Vacancy The sub-lease vacancy level of the Melbourne CBD office market, decreased over the six months to July 2024, falling to its lowest level in three years. As at July 2024, sub-lease vacancy totalled 85,209sqm, still above its 10-year average, resulting in a sub-lease vacancy rate of 1.8%.

Collectively, Premium and A-grade office space account for 94% of total sub-lease vacancy across the Melbourne CBD office market as at July 2024. The sub-lease vacancy rate is expected to increase once 242 Exhibition Street, Melbourne (Ex Telstra 30,000sqm) is accounted for.

Vacancy by Precinct The Civic, Eastern and North Eastern precincts were the

are sitting at all time highs. Collectively, the Western and

only precincts which recorded decreases in their vacancy

Docklands precincts account for 60% of the Melbourne CBD

rates in the six months to July 2024, however, the vacancy

office market.

rates of Docklands, Flagstaff and Western precincts

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Outlook In positive news the Victorian economy is forecast to

Despite the increasing rate of tenants relocating into the

continue to create jobs and this combined with limited new

CBD, the overall vacancy rate of the Melbourne CBD office

construction, is expected to see the vacancy rate reach its

market is projected to increase through this year before

peak at during 2025.

declining from 2025.

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Rents & Incentives While gross face rents for Melbourne CBD offices have

Prime Grade offices in the Melbourne CBD are projected to

risen as a result of increasing outgoings and incentives, net

record net effective rental growth from 2025 as incentives

effective rents fell over the 12 months to September 2024.

begin to ease from their current historical highs. In

The availability of diverse, high-quality offices in the CBD continues to drive competition amongst owners which has pushed prime incentives to historical high levels. Reflecting

contrast, rental growth for secondary offices is likely to remain under downward pressure until the overall vacancy rate has peaked.

the number of prime office vacant opportunities and competition for tenants, secondary net face rents have declined slightly through 2024.

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

Office Leasing Success

271 Collins Street Melbourne

379 Collins Street Melbourne

World Trade Centre Melbourne

124 Exhibition Street Melbourne

Area Leased: 5,500sqm

Area Leased: Multiple Suites

Area Leased: 6,000sqm

Area Leased: 1,500sqm

Leasing Team Phillip Cullity Director

0419 322 825 cullityp@fitzroys.com.au

Stephen Land Associate Director

0400 950 290 lands@fitzroys.com.au

Hamish Dennis Agency Executive

0406 500 232 dennish@fitzroys.com.au

Disclaimer: The information, views, projections or analysis published in this report including text, graphics, and all images are for general use only and not to be relied upon for financial or related investment in any way. No responsibility or liability whatsoever can be accepted by Fitzroys Pty Ltd for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. Reproduction of any part or whole of this report must seek prior express written approval of Fitzroys Pty Ltd.

FITZROYS OFFICE MARKET REPORT | OCTOBER 2024

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Office Leasing

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