Rents soar as St Kilda Rd space dries up

Vacancy on inner-city Melbourne thoroughfare St Kilda Rd has fallen to its lowest level in eight years, amid predictions the precinct will one day be overwhelmingly residential.

Vacant space on the popular office strip south of the CBD has fallen to 7.3%, down from 10.8% three years ago, according to new figures from commercial property agents Savills.

The figures show the lack of office options has driven a 23% surge in rents since July 2013, including a 12% jump in the last 12 months.

Savills research and consultancy manager Monica Mondkar says St Kilda Rd is now more expensive than ever before.

“Net face rents in July 2013 ranged between $270 and $325, and in July 2016 between $340 and $400. Based on an average rent, that is a 23% rise over the last three years,” Mondkar says.

“While that percentage does not represent every rental struck and will obviously vary from transaction to transaction, it nevertheless represents notable, across the board, growth.”

The Victoria Police office on St Kilda Rd was snapped up by investors last year.

St Kilda Rd vacancy peaked at 22.4% in 1992 at the height of the Savings and Loan crisis and has steadily declined in the ensuing 24 years.

Savills associate director of office leasing Kizzy Okoukoni says that with the demand for residential sites at an all-time high, vacancy is expected to tighten further.

“Ongoing demand for CBD fringe office space is of course a key contributing factor in the tighter vacancy level but the continual withdrawal of stock for other uses, predominantly residential, has also been a significant determinant,” Okoukoni says.

Mondkar says St Kilda Rd will eventually become a predominantly residential precinct.

“It’s only a matter of time before the commercial/residential property profile balance in St Kilda Rd, which currently has a two-thirds office/one third residential mix, shifts permanently to residential,” she says.

“For some landlords maintaining an older office building with any vacancy, on top of exorbitant land taxes, is not a long-term option.”

Net face rents in July 2013 ranged between $270 and $325, and in July 2016 between $340 and $400

Okoukoni says the numbers behind converting offices to residential were incredibly attractive for commercial property owners.

“There is no way this can stack up when a residential redevelopment can mean such a massive increase in return on the property and that means we are going to see the march towards residential use continue to the point where residential dominates the streetscape.” he says.

But he says there is still a need for commercial properties on and around St Kilda Rd.

“Residents need services, they need supermarkets, they need childcare, they need restaurants, cafes, accountants, financial planners, gymnasiums, etcetera,” he says.

“And there will always be corporations that wish to locate their offices on St Kilda Rd for whatever reasons, be they aesthetics and parkland views or lower rents and fewer crowds and better parking and accessibility than the CBD.”