Good times for city office tenants
The CBD office market, including Docklands, is the second-largest in the country but business downsizing and office developments have pushed vacancies above 10 per cent.
About 20,000 square metres is available in Leighton's 567 Collins Street building.
Anecdotally, there is also significant "hidden" vacancy, with many businesses carrying excess office capacity, says Jones Lang LaSalle tenant representative Peter Walsh.
Whether businesses decide to stay or move, they earn a large lease incentive.
Depending on building and tenant profile, incentives for premium and A-grade city office space were 27 to 33 per cent, said Colliers Australia's national director office leasing Tony Landrigan.
While they haven't reached the levels of the 1990s or the aftermath of the global financial crisis, recent incentives offered at 55, 357 and 477 Collins Street were widely tipped to exceed 40 per cent as owners aggressively chase tenants in a sluggish market.
Such attractive rates are enticing tenants from the suburbs and prompting others to look at previously unattainable buildings. Mulgrave-based electricity provider Jemena is on the hunt for 8500 square metres.
The company wants to move to between the outer eastern suburbs and the Docklands.
Another energy company, SP AusNet, is considering moving from Freshwater Place.
Businesses were "being offered everything [but the] kitchen sink to relocate," said Mr Landrigan. "Landlords have an understanding of where the market's at."
Tenants with leases expiring between now and late 2015 have hit a "sweet spot".
Law firm King & Wood Mallesons, which occupies the top floors in Bourke Place, would take 15,000 square metres if it decides to move.
Aecom is expected to consolidate offices now split between 80 Collins Street and 8 Exhibition Street into a single 6000-square metre space.
And Super Partners, whose lease at 2 Lonsdale Street is up for renewal in 2015, is another that may soon be scouring the market. Its 25,000-30,000-square metre footprint will have landlords salivating.
Another large leasing deal, KPMG's bid for up to 30,000 square metres, is close to being finalised.
Two options were being considered - stay put or moving to Lang Walker's Collins Street development, industry experts believe.
Most expect another substantial tenant Ernst & Young, whose lease at 8 Exhibition Street expires in 2018, to also stay put.
After a sluggish start to the year, "we have seen a resurgence" with large companies looking for space, says Jones Lang LaSalle office leasing director James Palmer.
"Current briefs in the market total around 180,000 square metres," he said.
Most were looking for large, efficient floor plates, good building amenity and public transport links, he said.
Legal firms, particularly, appear to be taking advantage of the circumstances.
Hall & Wilcox lawyers were close to deciding either to stay at Bourke Place or take 4500 to 5000 square metres at 180 Lonsdale Street.
Rivals Maddocks has shortlisted seven possibilities.
Banks, too, are on the move. The ANZ is looking for 20,000 square metres when its Kings Way call-centre lease expires in 2016 and the Bank of Melbourne is searching for a Collins Street address.
sjohanson@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
The Melbourne CBD office market (including Docklands) is the country's second-largest but has softened — vacancies are above 10 per cent. Brokers report both visible and a significant amount of 'hidden' vacancy as businesses carry excess office capacity.
Landlords are aggressively chasing tenants in a sluggish market, offering large lease incentives and generous relocation packages. That, combined with elevated visible and hidden vacancies, has created very tenant-friendly conditions.
According to market agents, incentives for premium and A‑grade city office space are typically in the 27–33% range. Recent deals at 55, 357 and 477 Collins Street were widely tipped to exceed 40% in incentives as owners compete for tenants.
Several large organisations are active: King & Wood Mallesons (could take ~15,000 sqm), Aecom (consolidating into ~6,000 sqm), Super Partners (25,000–30,000 sqm), Jemena (seeking ~8,500 sqm), SP AusNet, KPMG (bid for up to 30,000 sqm), Ernst & Young, ANZ (seeking ~20,000 sqm when its lease ends in 2016) and the Bank of Melbourne.
Industry experts say current briefs in the market total around 180,000 square metres. Notable availabilities mentioned include about 20,000 sqm at Leighton’s 567 Collins Street and several potential large requirements from tenants such as KPMG and Super Partners.
Most tenants are looking for large, efficient floor plates, good building amenities and strong public transport links—attributes that brokers say are top of brief for large corporate occupiers.
Landlords are offering extensive incentives and relocation packages—described by agents as 'everything [but the] kitchen sink'—as they show an understanding of current market conditions and compete to attract or retain tenants.
The article highlights a tenant-friendly Melbourne CBD market marked by elevated vacancies and large lease incentives. Everyday investors should be aware that current conditions favour occupiers and that owners are actively discounting space to secure tenants.
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