Health firms give office rates a shot in the arm

THE health industry is giving Melbourne's CBD office vacancy rate a lifeline.

THE health industry is giving Melbourne's CBD office vacancy rate a lifeline.

Knight Frank director Mark Rasmussen said demand from the health sector was buoyant, with tenants such as BUPA and Medibank increasing their floor size by up to 30 per cent as they move into larger premises in the CBD.

Super funds were also expanding, with Superpartners moving into larger premises after leasing 3500 square metres at 150 Lonsdale Street.

"The trend provides some respite against an uncertain global backdrop, which has seen many businesses revise growth prospects," he said.

Mr Rasmussen said absorption this year was expected to be near half the 10-year average, with 45,552 square metres forecast to be absorbed this year. "However owners of large quality contiguous floor plates can expect to see reasonable activity from the emerging growth sectors," he said.

Mr Rasmussen said health, superannuation funds, utilities and, to a lesser degree, communications, had shown some resilience to the market turmoil that had dampened business sentiment. "It is anticipated that sustained inquiry from these tenants will facilitate a modest level of demand in the short to medium term," he said.

Knight Frank director Michael Nunan said that given vacancies were forecast to rise to 6.9 per cent by the end of the year, "location" would be paramount to incoming tenants.

Collins Street remained Melbourne's preferred location for businesses. It would receive about 26 per cent of new development over the next three years.

Mr Nunan said 357 Collins Street was now 70 per cent committed and would be fully leased before completion in July. Many agreements were now being negotiated. Other buildings close to being leased up include 171 Collins Street and 150 Collins Street.

Mr Nunan said new developments would ensure the next cycle extended to at least the start of 2014. A total of 295,194 square metres of new office stock was slated for completion. "With strong levels of pre-leases anchoring new developments over the next two years, just 72,288 square metres, or 28 per cent of space, is yet to be committed," he said.

"Historically, the Melbourne CBD office market adds about 3.7 per cent of gross supply to the stock base each year. Over 2012 and 2013, the market will add an average of 3 per cent per annum."

The Knight Frank report found that the market yield direction was strongly correlating to bond rates and the rental growth outlook, with prime yields from 6.75 per cent to 7.5 per cent, while secondary transactions were reflecting yields of 7.5 per cent to 8.75 per cent.

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