Struggling office stock creates two-tier market
Net absorption of quality suburban office space has moved into positive territory.
"Over the total market, net absorption turned around ...in March 2013, from -10,626 square metres in the six months to September 2012, to 16,481 sq m over the current reporting period," researcher Anneke Thompson said.
But secondary stock, particularly tenancies with no fitout, proved more difficult to lease. Much of the secondary stock on the market is located in the outer east where the vacancy rate increased from 7.87 per cent to 9.75 per cent.
The firm's H1 Metropolitan Office Market Research & Forecast Report suggests Melbourne's overall metropolitan office vacancy rate will peak at 8.03 per cent in the second half of 2013 as speculative stock in the outer east region is completed.
"Over 2014, we expect vacancy to trend down slightly, as most new supply will only be built with significant pre-commitment," the report said.
Some speculative supply would be absorbed before buildings were completed but it would result in extra secondary or older A-grade stock becoming available as backfill space, Colliers Melbourne east director Rob Joyes said.
"There is currently 77,000 sq m of existing supply in just the outer east region, however, there is only 15,200 sq m that represents A-grade quality," Mr Joyes said.
There were some attractive lease incentives being offered for secondary grade buildings, but top-tier tenants were opting for energy efficient buildings with well-designed floor layouts that improved office density and had a variety of staff amenities, he said.
While there was reasonably healthy institutional activity in the inner precincts, private investors and syndicates were still dominant buyers.
Unlike CBD markets, both private and institutional buyers were locally based, indicating that foreign investors were yet to be enticed.
Frequently Asked Questions about this Article…
A "two-tier" Melbourne office market means quality (A-grade and energy-efficient) offices are holding up well while secondary or older office stock is struggling to lease. Colliers International found strong demand for modern, well-located buildings but weaker demand and higher vacancy for secondary space, creating divergent performance across the market.
Yes. Colliers reported net absorption of quality suburban office space has moved into positive territory. Across the total market net absorption turned around from -10,626 sq m in the six months to September 2012 to 16,481 sq m in the reporting period to March 2013.
Secondary stock is struggling because many tenancies have no fitout and are located in the outer east where vacancy rose from 7.87% to 9.75%. While lease incentives are being offered, top-tier tenants favour energy-efficient buildings with good floor layouts and staff amenities, leaving older secondary space harder to lease.
Colliers' H1 Metropolitan Office Market Research & Forecast Report suggests Melbourne's overall metropolitan office vacancy rate will peak at about 8.03% in the second half of 2013. The report expects vacancy to trend down slightly in 2014 as most new supply is only built with significant pre-commitment.
Colliers notes some speculative supply in the outer east will be absorbed before completion, but it will also create extra secondary or older A‑grade stock as backfill space. That additional supply could pressure leasing for existing secondary buildings.
According to Colliers Melbourne east director Rob Joyes, there is currently about 77,000 sq m of existing supply in the outer east, but only around 15,200 sq m of that represents A‑grade quality space.
Top-tier tenants are opting for energy-efficient buildings with well-designed floor layouts that improve office density and offer a variety of staff amenities. Those features are influencing leasing decisions and attracting higher-quality occupiers.
While there is reasonably healthy institutional activity in inner precincts, private investors and syndicates remain the dominant buyers. Both private and institutional buyers are locally based, and foreign investors have not yet been significantly enticed into this market.
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