Melbourne CBD Office Vacancy Increases
Vacancies in the CBD increased to 8.2% over the past 6 months, from 5.8%, according to the Property Council of Australia.
New developments added 350,000sqm of space to the market while another 390,000sqm of supply is expected to come online over the next 3 years.
Sublease vacancies more than doubled to around 180,000sqm during the period.
Fitzroys Agency Associate, Stephen Land said there is going to be demand and supply across all parts of the office market, given movements going both ways between the CBD and the inner-suburbs.
“The movement out of the CBD and lower rents have opened the door for city fringe and inner-city tenants to look for a good deal. The CBD was perhaps a space they had not previously had in their budget and so they are now acting on the lower rent environment,” he said.
“Many businesses are looking to move to city fringe and inner suburban locations to be closer to their home, making it easier to access the workplace and collaborate with colleagues in-person during a period of more flexible working hours and arrangements. There will be some for which the CBD is the most appropriate location for this.”
He said businesses now have had a sustained period to observe the ability of staff to effectively work from home, and are now more open to flexible office arrangements.
“However, the period has also reinforced the value of the personal interaction in a professional environment, and having a devoted space away from home in which workers can share ideas and interact more personally and intuitively. These bring economic, production and social benefits.”
Land said there is also going to be movement throughout the market as tenants reassessed the use of office space.
“This could present in the form a tenant downsizing to accommodate more staff working from home, or upsizing or moving to a space that allows for more flexibility between working at desks and collaborative and meeting spaces, while giving consideration to wellbeing elements such as appropriate social distancing and natural light.”
CBD Buildings Change Hands
A number of Melbourne CBD office and retail buildings have changed hands over the summer, including the head offices of Chinese e-commerce giant Alibaba.
Peachtree Capital’s Greg Rosshandler acquired 411 Collins Street for more than $40 million. The 3,267sqm, 9-storey building was constructed in the 1930s and is also leased to 7-Eleven on the ground floor.
Residential developer Burbank divested the historic 5-level building at 100 Franklin Street, which had been its headquarters for nearly 20 years, to developer Landream for almost $30 million.
Built in the 1850s, it had been home to Victoria Ice Works – founded by James Harrison, a mechanical refrigeration pioneer and founder of the Geelong Advertiser – as well as a coach-builder, and an ironmonger.
Burbank had obtained approval for 22-storey tower with 84 dwellings and almost 4,000sqm of commercial space on the site.
Landream had just sold out of 600 Collins Street, which had been earmarked for a Zaha Hadid-designed Mandarin Oriental hotel. US group Hines bought the site for $200 million and is now planning a $1 billion-plus office tower.
In the north of the CBD, a Chinese buyer acquired the double-storey shop 469 Elizabeth Street for $5.2 million at 3% yield. It is leased to Sarawak Kitchen and sold on a 3% yield.
In the east end, a local buyer bought the 2-level building home to The Mess Hall restaurant and café for just under $5 million. The Mess Hall has a 6+6-year lease over 51 Bourke Street
Meanwhile, on the city’s fringe the Catholic Archdiocese of Melbourne acquired the double-storey, heritage-listed 384-388 Albert Street building in East Melbourne for more than $12 million from the Bionic Ear Institute.
Boutique property fund manager Banner Asset Management bought a 1930s apartment building at 458 Victoria Parade, also in East Melbourne, for $5.775 million. The block has 12 units that were undergoing renovation.
Disclosure: The weekly Fitzroys Property Wrap is for information only on transactions in the Melbourne property market. Fitzroys provides this information as a public service. We are not purporting that all sales and leases within this report were transacted by Fitzroys. Terms/Privacy © Copyright 2021 Fitzroys.