2022-12-21-莱坊-Melbourne_Fringe_Office_Market_December_2022_9页_3mb

Summary of Melbourne City Fringe & Metro Office Market Report (December 2022)

Core Content

This report outlines the current state of the Melbourne office market, focusing on the City Fringe and Metro areas, and highlights the impact of economic and financial uncertainty on investment and tenant activity. It provides insights into market trends, net absorption, rents, yields, and supply dynamics across different precincts.

Main Market Trends

• Market Pause: Due to economic and financial uncertainty, both investors and tenants are pausing their activities, leading to a slowdown in investment volumes and net absorption.
• Yields: Yields across all markets are in the mid-5% range, with a slight upward trend observed in recent quarters.
• Net Absorption: Net absorption has turned slightly negative in most precincts, except for the Outer East Metro, which has seen positive absorption. The City Fringe (excluding St Kilda Road) has a vacancy rate of 11%, while including St Kilda Road, it is at 14.5%.
• Rents and Incentives: Net face rents have remained stable, but incentives have increased, leading to a decline in effective rents. St Kilda Road has seen a significant drop in effective rents, with incentives rising to 40%.
• Supply Dynamics: Supply in the Metro areas has been relatively muted, but the City Fringe is expected to see a marked increase in supply, over 100,000 sqm in 2023 and 138,820 sqm in 2024.

Key Insights

• Melbourne Economy: Despite global headwinds, the Melbourne economy remains resilient, with expected GRP growth of 5.9% for 2022 and an average of 3.4% p.a. from 2023-2027. The city is expected to benefit from the return of international workers and students.
• Inflation and Interest Rates: Inflation remains a concern, particularly in the construction sector, with a rate of 16% reported by the ABS. The RBA has raised interest rates to combat inflation, which is expected to impact commercial real estate demand and financing costs.
• St Kilda Road:
  • Net absorption has been negative (-36,276 sqm in H1 2022).
  • Vacancy rates have risen to 20.9%.
  • Net face rents remain stable at around $460/sqm, but effective rents have fallen over 20% due to rising incentives.
• City Fringe:
  • Rents are stable, with the Richmond/Cremorne precinct at $615/sqm and the Northern Fringe at $440/sqm.
  • The yield spread has increased, with the City Fringe now yielding 0.29% less than the CBD.
  • A significant supply pipeline is expected in 2023 and 2024, which may lead to higher vacancy rates.
• Metro Markets:
  • Net absorption has slowed, with a total of -5,070 sqm YTD.
  • The Outer East Metro has shown positive absorption, while the Inner East and South East have seen declines.
  • Net face rents remain stable, but incentives have increased, leading to a drop in effective rents.
  • Yields have risen, with the Inner East at 5.48%, and the North & West at around 6%.

Recent Market Activity

Under Construction

Recent Significant Tenant Commitments

Recent Significant Sales

Key Contacts

• Research: Tony McGough (tony.mcgough@au.knightfrank.com) | +61396044608
• Capital Markets: Paul Kempton (paul.kempton@au.knightfrank.com) | +61396044774
• Office Leasing: Hamish Sutherland (hamish.sutherland@au.knightfrank.com) | +61396044734
• Valuations: Michael Schuh (mschuh@vicknighfrankval.com.au) | +61385486820
• Asset Management Services: Ben Veale (ben.veale@au.knightfrank.com) | +61396044756
• Occupier Services: Gordon Wyllie (gordon.wylie@au.knightfrankoom) | +61396044666

Recent Publications

• Melbourne CBD Office Report September 2022
• Sydney CBD Office Report September 2022
• National Industrial Report Q2 2022
• Brisbane City Fringe Report June 2022
• Wealth Report 2022
• Australian Residential Report 2022-2023

All reports are available at knightfrank.com/research.