CBD office vacancy rate will fall: Savills

Melbourne's CBD office vacancy rate is forecast to fall to 8.3 per cent early in the new year, according to Savills Australia.

Lease deals, transactions and the withdrawal of some buildings will chip away at July's official Property Council vacancy rate, which stands at 9.8 per cent, Savills said.

Vacancy grew a hefty 42 per cent from January this year leading to a corresponding surge in incentives - rent-free periods, fitouts or reduced annual rent - offered to tenants, in some cases, by up to 30 per cent.

Savills' joint head of office leasing, Mark Rasmussen, said there was a real possibility that vacancy could fall below 8 per cent.

"There's been a lot of talk about a lack of activity but the market confidence and data would suggest otherwise," he said.

"What we've seen are Energy Australia taking approximately 15,000 square metres at 385 Bourke Street, BUPA taking nearly 12,000 square metres at 11 Exhibition Street, and Suncorp a further 15,000 square metres at 530 Collins Street, among others," he said.

Next year Origin Energy will vacate two large office floors in 271 Collins Street, which will make 7700 square metres available, said joint leasing agents Fitzroys' Rob Harrington and Colliers International's Andrew Beasley.

At the other end of the spectrum, Grocon group's joint redevelopment with Harry Stamoulis of 555 Collins Street and CBUS's conversion of 35 Spring Street to residential apartments will remove 34,000 square metres of space from the market.

"All of these events have helped to balance the ledger a little with the result that Melbourne will head into 2014 as a strong contender for the lowest capital city vacancy rate," Mr Rasmussen said.

Two of Melbourne CBD's largest office floors are coming to the market next year as part of a significant new offering at 271 Collins Street.

The withdrawal of sublease space by the major banks such as NAB and ANZ was likely to help improve vacancy rates, however CBRE estimates the vacancy rate will rise to about 10 per cent by the end of 2014, regional director of office services Andrew Tracey said. Tenants were making decisions to take advantage of the compliant market, he said.

Savills head of research Tony Crabb said business confidence was improving and official interest rates of 2.5 per cent were at a level that "ought to make things motor along".

"Victoria's probably going to do better next year. That ought to lead to take up of office space," Mr Crabb said.

A recent CBRE survey of Melbourne property owners and tenant representatives shows tenants were moving to reduce the size of their office footprint.

"Attractive incentives on offer in the Melbourne market were encouraging tenants to look at relocating, with 81.49 per cent of owners and 68 per cent of tenant reps expressing this sentiment," Mr Tracey said.

Both groups expect that in the longer-term incentives will reduce as the office market strengthens.

sjohanson@fairfaxmedia.com.au