Low supply pushes demand for Melbourne offices sky high

Investors are maintaining their enthusiasm for the Melbourne metropolitan office market even as the vacancy rate continues to head north.

Colliers International’s latest report on deals for office buildings outside the CBD indicates that although the number of properties for sale is subdued, interest from purchasers — especially foreign investors — is strong.

The report notes that in areas to which potential buyers are attracted, the supply of ­office buildings is just a trickle.

The hottest areas are along St Kilda Rd, Southbank and South Melbourne.

Collins St: CBD fashion forward as global brands set up shop

Lemon Baxter director and St Kilda Rd expert Chris Curtain says office space in the precinct has fallen to just 498,000sqm this year.

“In the next five years, we estimate a further 82,000sq m of offices will disappear in St Kilda Rd to make way for residential developments,” Curtain says.

“To put it into perspective, that is the amount of space ­inside the Rialto Tower.”

Colliers reports that although transactions have been brisk in the inner-city market, “there is still a lack of stock on offer, given the sheer number of potential purchasers”.

In the next five years, we estimate a further 82,000sq m of offices will disappear in St Kilda Rd to make way for residential developments

In the six months to September there has been a jump in office vacancies. Leasing in the outer east and southeast markets recorded the largest increases, rising to 10.8% and 7.6% respectively.

The city fringe office vacancy rate climbed from 6% to 8%. The rise in the inner east was from 5.9% to 6.2%.

New supply bumped up vacancies in the north and west, from 4.6 to 5.3%.

CoreLogic RP Data June quarter records show that only two properties just outside the city’s southern edge were sold.

The 19-storey Fawkner Centre at 499 St Kilda Rd was sold to Qualitas for $80 million and the eight-storey building at 10 Dorcas St, Southbank was sold for $30.75 million.

This article first appeared in the Herald Sun.