2022-09-27-莱坊-Melbourne_CBD_Office_Market_September_2022_9页_6mb

Melbourne CBD Office Market Summary - September 2022

Core Content

The Melbourne CBD office market experienced a mix of challenges and opportunities in the first half of 2022. Despite a slowdown in net absorption, the market showed signs of stability and resilience, with selective demand driving rent increases in premium locations.

Key Market Indicators

Main Points

• Rental Growth: Net face rents rose for the first time since the pandemic, but only in the premium (Prime) segment.
• Net Absorption: Net absorption was positive at 1,991 sqm in H1 2022, marking the first two consecutive positive periods since 2019.
• Vacancy Rates: Vacancy rates increased to 12.9%, with a rise in lower-grade space due to tenants trading up and an influx of new premium stock.
• Sector Shift: Financial services remained the most active sector, but their share of the market dropped to 40% from 51%. Professional services increased significantly, taking up 29% of the market.
• Supply Outlook: New supply is expected to decrease in the coming years, with only 92,000 sqm projected for 2023 and 79,800 sqm for 2024, due to rising construction and financial costs.
• Rent and Incentive Trends: Face rents in selective precincts rose, with the Eastern Core seeing a 10.1% increase. Incentives peaked at 40%, with net effective rents rising to $409/sqm.
• Yield Increases: Prime office yields increased to 4.71% as the cost of capital rose, with secondary yields also moving up to 5.0%.

Economic Outlook

• Resilience: Despite global headwinds, the Australian economy is expected to grow by 3.8% in 2022, with Victoria leading the way at 4.9%.
• Inflation: Inflation in the construction sector reached 17%, with fundamental materials like steel and timber seeing price increases of up to 40%.
• Future Projections: The market is expected to see a slow decline in vacancy rates, with net absorption likely to remain around long-term averages. By 2027, average net face rents are forecast to rise to $793/sqm, with incentives dropping to 35% and net effective rents reaching $516/sqm.

Major Office Supply and Refurbishments

• Major Tenants: Services Australia, TAL, and Aware Super have made significant commitments in the CBD.
• Refurbishments: Major projects include 500 Bourke Street (44,000 sqm, 35% committed), 555 Collins Street (8,000 sqm, 100% committed), and 522 Flinders Lane (30,000 sqm, TBC).
• Under Construction: 140 Lonsdale Street (22,000 sqm, 100% committed), 200 Victoria Parade (25,000 sqm, 75% committed), and 580 Lonsdale Street (25,000 sqm, 0% committed).

Investment Activity

• Sales Volume: Sales reached $2.85bn year to date, surpassing the entire 2021 total. The Southern Cross Towers sale was a major contributor.
• Yield Trends: Prime yields increased to 4.71%, with secondary yields also rising to 5.0%. The market is expected to see continued yield increases due to rising bond rates and cost of capital.

Contact Information

• Research: Tony McGough, +61396044608, Tony.McGough@au.knightfrank.com
• Capital Markets: Paul Kempton, +61396044774, Paul.Kempton@au.knightfrank.com
• Office Leasing: Hamish Sutherland, +61396044734, Hamish.Sutherland@au.knightfrank.com
• Valuations: Michael Schuh, +61385486820, Mschuh@vic.knightfrankval.com.au
• Asset Management Services: Ben Veale, +61396044756, Ben.Veale@au.knightfrank.com
• Occupier Services: Gordon Wylie, +61396044666, Gordon.Wylie@au.knightfrank.com

Recent Publications

• Reports: Available at knightfrank.com/research
• Disclaimer: This report is for general information only and not to be relied upon. Knight Frank Australia Pty Ltd does not accept any responsibility or liability for losses or damages resulting from its use.