How would you characterise your market at the moment?
The fringe market has experienced a slow start in Q1 2012. Whilst there have been significant transactions, namely the Treasury Wine Estate commitment to 7,403 sqm at Queensbridge Street, Southbank, the volume of deals reported by fringe agents in the first quarter is well down on past quarters.

Are there any trends you are noticing among the tenants you are talking to?
We are experiencing an increase in the number of occupiers seeking to rationalise space and offer up sub-lease opportunities. Those occupiers with pending lease expiries/renewals, are exploring the market for more cost efficient options, or looking to take advantage of incentives. In many instances occupiers are using these incentives in lease renewal negotiations.

The basis for relocation by a tenant needs to be compelling. Not only is cost saving a key driver, flexibility in lease term and ability to expand and contract into space is also of high consideration. Presentation of space and building amenity remains a critical element to leasing success.

What do you think will be the biggest influence on your market in Q2?
We anticipate the volume of stock available in the CBD market will have a detrimental effect on the fringe market at the top end (2,000 sqm plus). There are few vacant fringe opportunities with contiguous space greater than 3,000 sqm, therefore we anticipate occupiers seeking such space will have little alternative but to consider CBD markets versus remaining in traditional fringe locations. Whilst this may result in back fill opportunities there’s a strong possibility occupiers will remain in existing premises and look to improve work places with a view to resolving inefficient/poor accommodation.

What will rents and incentives do in Q2?
We are experienced a slight increase in rents in Q1 and incentives are holding steady. There are examples of landlords with large vacancies providing above market incentives in order to resolve high vacancy issues. These transactions are typically accompanied by higher face rents, which have enabled the tenant to fund a fit-out. But these deals are few and we anticipate rent levels and incentives to remain constant for the remainder of 2012.

What should landlords do to adapt to these market conditions?
Landlords and their agents need to understand the key drivers of occupiers and seek to be creative and flexible when structuring terms for leasing. Understanding the competition is of paramount importance.

Richard Norman
Manager, Leasing, Melbourne City Fringe
richard.norman@ap.jll.com

Recent Leasing Deals

• Treasury Wine Estate leased 7,403 sqm at 58 Queensbridge St, Southbank.
• NBN sub leased 2,006 sqm at 380 Docklands Drive, Docklands.
• Talent2 leased 655 sqm at 54 St Kilda Rd, St Kilda.
• Alfred Health leased 2,400 sqm at 607 St Kilda Rd.
• Australian Grand Prix Corporation leased 1,267 sqm at 616 St Kilda Rd.
• Data 3 leased 1,290 sqm at 55 Southbank Blvd, Southbank.

Key Indicators

Market Balance, as at March 2012

Download a PDF of the Melbourne Fringe Q112 Market Overview