Office market rejuvenation fueled by high-quality choices

MELBOURNE, 4 October 2023 – Melbourne’s office market is starting to see a welcome increase in activity with a number of tenants taking the opportunity to upgrade to higher quality spaces as a new post-COVID-19 market emerges, according to a new report from JLL.

The Tenant Perspectives: National, local and sector office market insights report found a significant driver behind the latest flight to quality was a desire for improved human experiences with both tenants and landlords increasingly looking to improve the overall workplace to achieve a meaningful and sustainable return to work.

Gellie Mendes, Director, Tenant Representation – Melbourne, said the outlook appeared much more positive with the fog of COVID finally beginning to lift across the broader economy.

“Interest rates have begun to stabilise and we are now getting a much clearer picture of what the future may look like and that has resulted in a greater level of enquiry especially around tenants taking advantage of current opportunities, including the best buildings and locations,” Mr Mendes said.

He added that large occupiers and investors were now focusing on repositioning and/or consolidating assets.

“Tenants and investors alike are now refining strategies to achieve balanced occupancy levels, adaptive offices, meet sustainability targets and have a thriving workforce, and this includes development of precincts, so the office becomes more of a destination that supports the Australian lifestyle,” Mr Mendes said.

Melbourne’s CBD office market recorded a robust net absorption result of 6800 square metres in the second quarter of 2023 on the back of a neutral result of 81 square metres in the first quarter, while the fringe market recorded net absorption of 24,450 square metres.

Mr Mendes said the most popular CBD office markets had been the Docklands and the Western Core with growth in the financial services and technology service industries making them the most active in the leasing market while government tenants had been consolidating.

The report found prime face rents in the CBD were now around $656 a square metre, up 2.7 per cent year on year, with CBD fringe rents at $517 a square metre, while secondary rents were at $484 a square metre (4 per cent higher, year on year) and $392 respectively.

JLL Associate Director, Tenant Representation – Melbourne, Wendy Lever, agreed enquiries were on the rise, with the sub-1000 square metre sector of the fringe market the most active.

“The fringe office market has certainly evolved in recent times with higher quality buildings, brand new spec suites and plenty of options to choose from, and that is providing occupiers with opportunities to gain flexibility, generate savings and upgrade to quality spaces,” she said.

“It is that opportunity, which is now driving the market and, increasingly, tenants are taking advantage.” 

Ms Lever said the high-quality buildings available on the fringe were more than capable of meeting occupier’s amenity and sustainability requirements.

“These buildings have attracted some major and notable new residents to the precinct including the Victorian government, which has consolidated its various CBD office locations into a 19,000 square metre space in East Melbourne’s newest development at 200 Victoria Parade. Australia Post, McConnell Dowell and Nucleus Networks will also be taking on new fringe market space.

“The Yarra Precinct also offers excellent amenities, including restaurants, cafes, bars and good public transport access, facilities which are driving a higher level of demand and new interest in fringe markets, which augurs well for a positive new market.”

She added that investments in the suburban rail network would further boost fringe activity in the medium-to-long term, providing occupiers with more accessible locations, such as the Young Husband Development which will be accessible from a number of train stations.

JLL’s report also found sustainability was no longer a minor consideration with Net Zero carbon commitments now a powerful driver in commercial lease strategies for occupiers.

It found that beyond the imperative of combating climate change, these commitments offered numerous advantages including strengthening relations between landlords and occupiers, reducing operating costs, enhancing employee engagement, and ensuring regulatory compliance.