Melbourne Office Market Update – Feb 2O23

Market status

Melbourne CBD remains a tenant’s market with office space vacancy rates up 0.9% in H2 2022 to 13.8%. However, small premium office space is in short supply.
Melbourne fringe vacancy rates are high – 14.5% in Southbank and 22% in St Kilda Road. The exception is East Melbourne with a vacancy rate of only 4%.
Hybrid work is being embraced “as a given” but employers are wrestling with how to accommodate flexible working while maintaining company culture.
The “flight to quality” trend continues with tenants gravitating towards office space in prime locations with modern amenities.

Outlook

In 2022, TRS helped more of our clients relocate than in any previous year, with many taking the opportunity to upgrade their offices. Quality remains front of mind for companies to entice workers back into the office and attract new talent in a tight labour market.
To accommodate flexible working, tenants are enquiring about “third spaces” –communal spaces, beyond the tenancy, which workers are free to use e.g. larger meeting rooms, chill out lounges, rooftop gardens, and outdoor balconies.
Many landlords are providing speculative fit-outs to attract tenants into vacant space. A spec fit-out may be worth considering, as you might not be able to achieve the same standard fit-out with the incentives on offer. But beware of compromising!
Space is becoming vacant as large corporates right-size and/or take up space in new buildings. So, it’s important to work with an independent tenant representative to make sure you can access space that may not be advertised on the open market.
Increasingly, sustainability credentials are an important consideration. However, tenants can baulk at the higher rent for more sustainable buildings.
Melbourne is predicted to add 150,000+ sqm of new office space in the next 2 years.

Vacancy rates

Melbourne CBD – 13.8%

East Melbourne – 4.0%

Southbank – 14.5%

St Kilda Road – 22.0%

Source: TRS research.

To find out how TRS can get you the best deal on your next lease renewal or office relocation, please contact us.

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