Melbourne feels squeeze from tech boom

The expansion of the tech sector is making a mark in Melbourne’s CBD office market, where the vacancy rate fell to 7 per cent in the last six months.

Improving from 7.8 per cent, Melbourne has the second-lowest vacancy rate among the major markets.

In recent deals social media giant Facebook took close to 1000 square metres in Docklands, filling the last remaining space in Cbus Property’s 720 Bourke Street.

It joined another tech sector player, Electronic Arts, which has taken 4205 sq m in the same building.

Other tech corporates are filling seats in the CBD this year: LinkedIn has taken 1250 sq m; Zendesk, 2300 sq m; Datacom, 1210 sq m; Amazon 1600 sq m and Interactive Data, 843 sq m.

There is more to come. Requirements by SEEK, Ericsson and Samsung total around 50,000 sq m.

Noting the tech trend, Knight Frank’s Hamish Sutherland said prime incentives had retracted as vacancy hit a four-year low. In some buildings, incentives are in the low 20 per cent range compared to 30 per cent less than a year ago.

“Supported by positive net absorption, prime net face rent levels are forecast to average a growth of 5 per cent per annum.”

CBRE’s Marc Mengoni expects more strong inquiry from the IT and tech sectors, with new businesses seeing Melbourne as “an attractive hub for creative spaces”.

The four pillars of Melbourne’s office market – Telstra, ANZ, NAB and the state government – are now in a leasing phase for the first time in years, Savills’ Mark Rasmussen said.

“Mid to late next year we should see some dramatic downward movement in incentives as vacancy continues its downward trajectory.”

Pre-commitments have helped drive big developments in the last quarter as well. Deloitte will take up as much as 20,000 sq m at Mirvac’s 477 Collins Street.

Cbus Property won over King Wood Mallesons as the first anchor tenant for its $1.25 billion development at 447 Collins Street.

“The regeneration of Melbourne’s CBD mid-town office markets is under way,” said JLL’s Stuart Colquhoun.

Melbourne’s CBD recorded below-average net absorption – of 7641 sq m – in the six months to July 2016, according to the Property Council of Australia.

Supply is dwindling as well. There is 87,768 sq m forecast this year, none expected in 2017 and around 75,000 sq m in 2018.

As supply eases, the PCA’s Victorian acting executive director Asher Judah urged the state government to move carefully on its proposed new CBD planing controls.

Tightening supply is expected to squeeze vacancy rates harder by 2018 and then into 2019.

“Come 2019, we are likely to see something of a repositioning as new developments such as Melbourne Quarter come online,” said Colliers International’s Tony Landrigan.

Source: https://www.commercialrealestate.com.au/news/melbourne-feels-squeeze-tech-boom/