New office space stalls

With only 12,200 square metres of offices under construction, JLL said in its June-quarter report that net absorption this year and next would be positive, but below the 10-year average of 23,800 sq m.

"The conditions for new development remain challenging," said JLL's director of research, Andrew Ballantyne. "Lenders are reluctant to provide debt finance for the speculative development that has characterised the suburban market over the past 10 years."

Mr Ballantyne said this would limit supply in the short to medium term. But the "Revitalising Central Dandenong" project with state government precommitment "will drive activity in that precinct".

With vacancies expected to tighten over the next 18 months, gross rents were forecast to rise by an average 4.3 per cent a year from 2011 to 2013, Mr Ballantyne said.

JLL found that key features in the south-east office market in the June quarter were:

A positive net absorption of 5900 sq m.

Lack of any office completions, with only 4000 sq m scheduled to be completed in the second half.

A vacancy rate of 9.1 per cent, the lowest since the second quarter last year.

A rise in prime gross effective rents of 0.3 per cent to $306 sq m a year.

Prime yields remaining unchanged at 8 to 9 per cent.

In the first half, the only building to be completed was 155 Cotham Road, Kew (6350 sq m). The redevelopment of Tooronga Village this year will be anchored by Ultratone with 2000 sq m of space.

Mr Ballantyne said tenant demand in the quarter had been strong. Pacific Brands (5000 sq m) and AMGEN had both leased space at 115 Cotham Road. Other major take-ups were Jemena at 353-355 Burwood Highway, Burwood East, and McPherson's at 540 Springvale Road, Glen Waverley.

Big sales included 50 Burwood Road, Hawthorn, for $17.1 million; and 465 Auburn Road, Hawthorn East, for $11.2 million, on an initial yield of 7.95 per cent.