Melbourne Spotlight + Trends Affecting Melbourne Commercial Market

July 23, 2019 | Commercial Real Estate

A view of Melbourne CBD from across the Yarra River | Melbourne spotlight article

The past year has seen increasing demand for Melbourne office space, especially in the CBD and in East Melbourne. 

Rental rates

Average rental rates for A-Grade space in the Melbourne CBD have increased by just over 3% in the past 12 months off the back of tight vacancy rates. Tenants can expect to pay around $600 psqm net – just over half the cost of comparable space in the Sydney CBD, and only slightly more expensive than what you’d pay in Perth and Brisbane.

Premium Melbourne CBD office space averages $710 psqm net, while B-grade rents sit at around $500 psqm net.

A-Grade rates in St Kilda have grown by more than 5% over the past year, after experiencing a rise of more than 15% in the previous 12 months. They’re now hovering around $475 psqm net. 

Vacancy rates

Vacancy rates for prime office space in the Melbourne CBD have dropped slightly over the past year and are now sitting at just under 3%. That’s the lowest rate of any Australian capital city and well below the national CBD average vacancy rate of just over 8%. 

Vacancy rates in East Melbourne are also low at just over 3%. That contrasts sharply with the Southbank market, where current vacancy rates are just under 11%. St Kilda vacancy rates are in the mid-range at around 6.6%.

Image of a Melbourne laneway | Melbourne spotlight article

Stock

Leasing activity has decreased over the past year due to the lack of stock. However, 

there are a significant number of new office development projects underway in Melbourne’s CBD.  

Approximately 700,000 sqm of office space will be injected into the CBD over the next three years. These new CBD developments are in high demand, with 80% of space already pre-committed.

Market Trends

Strong demand

Demand for Melbourne office stock continues to trend upwards due to healthy population and employment growth, and an overall lack of supply. These trends are expected to continue in the short term at least.

The rise in co-working spaces

Like most countries around the world, the demand for coworking spaces is increasing in Australia, and Melbourne is leading the way! Almost half of the coworking spaces in Australia are currently located in Melbourne, making it the coworking capital of Australia.

Coworking spaces allow freelancers and businesses to network and share office space. Even larger organisations are jumping on the coworking bandwagon as a means of staying flexible and abreast of innovative or disruptive startups.

A reduction in incentives

Strong demand for Melbourne office space over the past year has also seen a reduction in the level of incentives being offered to tenants, especially in the CBD. A-Grade incentive levels here sit at around 25%. 

Tenant Representation Melbourne

Tenant CS is a commercial tenant advisory service that offers tenant representation services in Melbourne. We also cater for businesses across Australia, with a particular focus in Sydney, Perth, Adelaide, Brisbane, and Canberra.

We represent you, the tenant, exclusively. And our in-depth knowledge of the Australian leasing market gives our clients the competitive advantage when it comes to finding a space or negotiating a commercial lease.

If you’re on the hunt for tenant advisory services in Melbourne, get in touch with our team today!

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The Author

Sophia Bockisch started at Tenant CS as a Research Analyst in 2017 in Singapore for six months. She transferred to the Tenant CS office in Sydney in the second half of 2018, supporting the team as a Consultant.

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