The office vacancy rate in Melbourne’s CBD has decreased to 3.2 per cent, the lowest CBD vacancy rate in the nation, proving yet again how attractive the Melbourne office market is to tenants and investors.
Reflecting the strength of Melbourne’s office market, over 600,000sqm will be supplied to the market by the end of 2022. Close to 400,000sqm of this new supply will come to market in 2020, the biggest annual increase in almost three decades. Almost 90 per cent of newly constructed stock in 2020 is pre-committed.
As the PCA chart shows, net absorption has dropped significantly in 2018 and 2019, keeping vacancy rates low and rents high.
The Property Council’s Victorian Executive Director, Cressida Wall, has cautioned that the new office stock will do little to relieve pressure on vacancies, particularly in the CBD where C270 planning controls continue to significantly impact the development pipeline.
“It is vital to the ongoing growth of Melbourne as an international city that we continue to develop sustainable and well-designed office space in the CBD,” said Ms Wall.
“Planning controls have put a chokehold on new office development in the CBD in recent years, restricting opportunities to attract world-class businesses and meet their needs of large and flexible floorplates into the future.”
A report by Urbis, released in November 2018, suggests that Melbourne CBD’s floorspace needs to double between now and 2036 to meet the needs of population and employment projections.
“We need to stop thinking about the property cycle in terms of what we need right now given that office towers take years to build, from approval to completion. Melbourne remains an attractive proposition with a great lifestyle and competitive rents driving low vacancies. The immediate future remains bright, but if we don’t secure a future pipeline of supply beyond the current cycle our ability to continue to grow as an international city is compromise,” said Ms Wall
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