Melbourne to become the commercial property hub of Australia by 2020

Melbourne is poised to become the largest city centre office market in the country, overtaking Sydney by 2020.

The biggest commercial construction boom in Melbourne for more than two decades will create the climate for the shift in capital city market focus. By contrast Sydney is facing a contraction in its market with office space being withdrawn to make way for the Metro Rail project. Towers are also being converted to other uses, including residential and hotels. Melbourne’s impending office supply boom, however, is expected to favour tenants, pushing vacancy rates in the city centre to a 20-year high of 10.7 per cent by 2020, according to research by Investa, one of Australia’s largest property groups.

By 2021 it could hit 12.7 per cent, depending on employment growth and consequent absorption of space. The surge in Melbourne’s city centre office supply will lift incentives to as much as 30 per cent by the middle of 2018. In Sydney, incentives will tighten to between 18 per cent to 20 per cent by 2018.

Melbourne’s city centre office market, which includes Docklands, is moving towards 5.5 million square metres.  Sydney already has more than 5 million square metres in its city centre market, but it is constrained by geography. Along Melbourne’s Collins Street, more than 200,000 square metres of new office space is due for completion between 2018-2020. Cbus Property is developing the ‘Pantscraper’ tower at 447 Collins Street, Mirvac is beginning a A$500 million redevelopment at  477 Collins Street and Lendlease is creating new office space at its Melbourne Quarter project and a new tower for ANZ in Docklands.

Investa found that a further tranche of up to 370,000 square metres of approved new office space will come on stream in Melbourne’s city centre office market over the next five years.

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