Government drives booming Melbourne leasing market

A surge in interest from the government and community sectors has seen Melbourne’s CBD office leasing market race into rare territory.

Almost 570,000sqm of space was leased in the CBD in the 12 months to March, a leap of 128% on the 250,000sqm leased the previous year, according to new research from Savills.

About 38% of that space was snapped up by government departments and the community sector, who collectively leased almost 225,000sqm, the vast majority of which was prime grade offices.

The result is also a massive increase on the five-year average of 270,000sqm.

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Among the major leases bumping up the figures was the Victorian Police, Federal Police and Australian Crime Commission’s take-up of 65,000sqm on a 30-year lease at 311 Spencer St, the Department of Treasury and Finance’s 10-year lease renewal for 50,538sqm of space at 50 Lonsdale St, and the Administrative Appeals Tribunal’s lease on 7183sqm at 15 William St.

Savills associate director of research Monica Mondkar says the leasing boom is “quite remarkable… in anybody’s language”, while director of office leasing Phil Cullity says a number of factors are behind the rise.

The State Government, in particular, has been proactive in taking advantage of market conditions, locking in rents and incentives, before rents begin to rise

“Overall, governments – state and federal – have underpinned the massive take-up, with population growth also an important part of the equation,” Cullity says.

“Last year net absorption was 117,000sqm, which smashed the 10-year, 86,000sqm, average and all indications are that we are in for another 12 months like that.”

“It’s then really no surprise that developers are pushing ahead with new buildings, especially with economic rents being achieved,”Cullity says.

Cullity says timing is a key factor in the number of government leases currently being signed or renewed, as well as the pressure to retain staff.

“A lot of government leases have recently come up for renewal at the same time and they are well overdue to move into better quality, more efficient space,” he says.

“The State Government, in particular, has been proactive in taking advantage of market conditions, locking in rents and incentives, before rents begin to rise.”

“Governments now realise that, as they are in competition with the private sector for the best young talent, they must offer a similar level of accommodation and that includes the latest building services including end of trip facilities, meeting facilities, amenities and access to transport, cafes.”