Melbourne's CBD office market is on the verge of recovery, according to new research from Knight Frank.
Knight Frank's Melbourne CBD Office Market – September 2024 report shows key signs including flat prime yields, stabilizing capital values, lower net absorption declines and economic and employment growth expectations in 2025 , it turns out that the market is nearing the bottom.
Prime yields remained flat at 6.4% through the second quarter, indicating that they may have peaked, but prime capital values also remained stable throughout the quarter.
The research shows that while investment in 2024 is lower, it is likely to be higher than in 2023, with investment totaling $832 million for the whole of last year, compared to $792 million now.
Meanwhile, net absorption in the first half of 2024 was -15,435 square meters, an improvement from the recalculated value of -37,435 square meters recorded in the second half of 2023. Prime net absorption was -7,737 square meters, while premium net absorption remained in positive territory.
Victoria Hamish-Sutherland, head of leasing at Knight Frank Partner, said the market had been less active in terms of new inquiries over the second quarter, but was becoming more stable and expected to see further activity later in the year. He said it was expected.
“The Melbourne CBD office market has been experiencing some post-COVID uncertainty, but there are signs of improvement, with net absorption trending upward over the past 18 months,” he said.
“The majority of large occupiers have now completed a reassessment of their space requirements and are moving forward with confidence.
“The desire for high-quality spaces in terms of buildings and locations remains strong, and net absorption of luxury spaces continues to be positive.
“After a quiet first half of the year, activity has picked up since then and we expect that to continue for the rest of the year.
“Tenants are taking their time to make the right decision and deals are taking longer to close because of the options on offer.”
Dr Tony McGough, Partner, Research & Consulting, Knight Frank He said he would provide support.
“Melbourne's GDP is expected to reach a peak growth of 4.4% by 2026,” he said.
“Strong population growth is supporting Melbourne's economy, with growth expected to be 3.1% this year, faster than Australia's 2% growth rate, and Melbourne's population expected to grow at 0.5% per year in the future, faster than Australia's growth rate of 2%. It is predicted that.”
“As the economy grows, employment growth in Melbourne's CBD is expected to pick up, doubling in 2025 from 1.4% in 2024 to 2.9%.
“We expect a return to stronger employment growth, a continued broader return to the office, and improving business confidence to reinvigorate the weekday CBD and drive stronger net absorption.” It will be done.”
According to a Knight Frank report, vacancy rates in Melbourne's CBD office market increased from 16.4% in the first half of this year, largely due to a significant increase in premium vacancies as the Melbourne Quarter (from 11.2% to 16.1%). It rose to 18%. The tower was completed with 70.5% empty space.
“Melbourne's vacancy rate could reach its peak in the second half of 2024, with no space available,” Dr McGough said.
“In fact, if net absorption returns to positive in the next data point, vacancy rates will decline in the second half of the year.”
The report also revealed that prime net face rents rose 2.3% to $716 per square meter in the second quarter. This is a continuation of the long-reported flight to quality, with all of that increase coming from Eastern Core.
