Melbourne office vacancy rate rises but fundamental strengths remain

The Melbourne commercial office market remains tight despite a significant increase in office supply over the last six months and the initial impact of COVID-19.

The Property Council of Australia’s July 2020 Office Market Report revealed Melbourne CBD office vacancy rate at 5.8 per cent, up from a historically low 3.2 per cent six months ago, which is part of the country’s first net rise in vacancies in four and a half years.

The increased vacancy rate in Melbourne is not a story of falling demand, but instead a confirmation of significant developments opening.

The Melbourne CBD recorded its largest supply of new office stock in almost 30 years over the past six months with a one per cent increase in net demand..

Sub-lease vacancy increased by around 10,000sqm during the period, but remains below its historical average level. Melbourne also had the smallest variation between prime and secondary office vacancy rates.

Melbourne will add over one-third of the country’s new office space for the remainder of the year, and 82 per cent of this space is already pre-commited to.

Office vacancies are calculated on whether a lease is in place for office space, not whether the tenant’s employees are occupying the space or working from home.

A summary of the July Office Market Report data can be found at www.propertycouncil.com.au.

As noted by Property Council Victoria Executive Director, Cressida Wall

“It is simply too soon to tell what the impact of the pandemic will be on the office market, but Melbourne started from a very strong position

“Coming off the lowest vacancy rates in the city’s history prior to the pandemic, it is likely that demand will remain strong, notwithstanding Melbourne’s temporary shift to home-based working.

“While we all deal with this significant public health situation, it is not too early to put plans in place that reanimate the Melbourne CBD and provide a sense of safety and comfort for office employees when they return.

“The Property Council is already engaged with the State Government, the City of Melbourne and other stakeholders on a range of issues such as public transport safety and appropriate economic stimulus. We’re also in a position to learn from the successes and failures from other cities who are in similar situations.”

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