How would you characterise your market at the moment?
The suburban leasing market has softened in the December period as large occupiers show concern over the worsening Euro zone. Record rents achieved in the 2011 period seem to be falling away with most tenants looking to consolidate in their existing premises. The 2011 market was characterised by a tightening of supply and a low vacancy rate. Whilst there is no new supply due for completion outside of the activity centres, we believe that there will be a higher in-flow of sub-lease availability over the next 12 months.

Highlights from 2011 included 11 major leasing transactions over 1,000 sqm in the inner east and 12 in the south east including five large pre-commitment deals, the most ever completed in a 12 month period in the suburban market.

Are there any trends you are noticing among the tenants you are talking to?
We are predicting an increase in the supply across the suburban market as tenants look to off-load excess space in a further effort to save money. This will increase the vacancy rate which has been on a downward trajectory over the past three years. We believe this will take some of the heat out of the pre-commitment markets, as present face rentals open a wider gap with the economic rents required to make office projects viable.

What do you think will be the biggest influence on your market in Q1?
Sub-lease availability may have a greater influence on the market in 2012, as the only new supply due into the market will not be delivered until late 2012. Consumer confidence is still down as people look to the global environment for a lead on the year. However, we anticipate that there will be a bounce mid-year as there is already indications that Q1 and Q2 results will be better than expected.

What will rents and incentives do in Q4?
We see a softening of rentals from the historical highs achieved in 2011 markets as occupiers confidence in the market falls away on the back of continued negativity in the Euro zone. This will be compounded by several sub-lease availabilities that we expect to come to the market.

What should landlords do to adapt to these market conditions?
Any vacancy should be dealt with carefully. If the prospective tenants show significant interest landlords should be flexible in order to secure the deal. We believe that activity will be sporadic for the first half of the year.

Joshua Tebb
Director, Leasing, Victoria
joshua.tebb@ap.jll.com

Recent Leasing Deals

• ANZ Business Banking leased just under 1,000 sqm at 264 Ferntree Gully Road, Mount Waverley
• Lockheed Martin have leased 1,500 sqm at 307 Ferntree Gully Road, Mount Waverley
• AVJennings leased just under 1,000 sqm at 108 Power Street, Hawthorn
• Roche Products leased just under 1,500 sqm at 108 Power Street, Hawthorn

Key Indicators

^{Source: Jones Lang LaSalle}

_{Source: Jones Lang LaSalle}

Download a PDF of the Melbourne South East Q4 Market Overview