Melbourne CBD Q107.05.2012
How would you characterise your market at the moment?
The Melbourne CBD leasing market is ‘operating under a cloud’. Tenants continue to behave cautiously by delaying real estate decisions. They are motivated around outcomes that deliver operational efficiencies and by consequence, cost savings. These outcomes have seen the re-emergence of sublease space with the largest area (11,000 sqm) being offered by AXA/AMP at 750 Collins Street.
Are there any trends you are noticing among the tenants you are talking to?
The catalyst for leasing enquiry continues to be either lease expiry or expiry of further term option dates. As a result, tenants are often entering the market with minimal time to assess alternatives and make property decisions. The ‘stay put and renew short term’ outcome continues to be highly favoured. We expect this trend to continue throughout the balance of 2012.
What do you think will be the biggest influence on your market in Q2?
Currently, the four greatest market issues that are anticipated to affect the office market during 2012 are:
What will rents and incentives do in Q2?
Asking rents in Melbourne were increased in early-2011 to capture the anticipated rental growth expected throughout 2011. With this not eventuating, asking rents are currently under review across most CBD buildings. We expect this may result in asking rent being reported at levels closer to deal rent. Incentives increased slightly in late-2011. We expect the current levels for moving tenants (circa 20% net lease value) to continue until at least 1H12.
What should landlords do to adapt to these market conditions?
Be patient and target businesses that can afford to meet higher occupancy costs. Assess tenant demand and be sensitive to their operational needs and focus on efficiency.
Head of Leasing, Victoria
Recent Leasing Deals
Market Balance, as at March 2012
Download a PDF of the Melbourne CBD Q112 Market Overview