The rise of Melbourne’s Southbank office
Melbourne’s future is sure to be prosperous. The city’s growth is proof of this – data from the most recent census shows that over 2015 and 2016 its population increased by over 100,000, or 2.4 per cent. That’s the highest rate of increase in any major Australian city.
This growth impacts every aspect of the city including its commercial real estate market, which has seen increasing demand for years now. One area that has gone from strength to strength is Southbank – a suburb with a burgeoning office market that’s set for impressive growth in the future.
To help guide your property decisions, we’ve had a closer look at the office market in Southbank with the help of Ray White’s in-depth commercial research.
Recent data indicates that the office market here may in fact be faring even better than Melbourne CBD’s.
Southbank’s growth is tied closely to Melbourne’s. Luckily, demand for office space in the city centre has been impressive for years now, with vacancies consistently falling and sales turnover remaining high.
The Southbank office market has followed suit, and recent data indicates that the office market may in fact be faring even better than Melbourne CBD’s. At the very least, owner-occupiers, investors and those looking to lease space should consider the area for its affordable, attractive properties and impressive growth prospects.
Low supply, high demand
The last decade has seen Southbank completely transform. Not only did the area emerge as a residential and entertainment hub, but high quality office stock was built in droves between 2008 and 2011 with projects such as the Freshwater Place precinct.
Not only did the area emerge as a residential and entertainment hub, but high quality office stock was built in droves.
Post-2011, more affordable stock options were added, prompting a rapid increase in demand from office tenants in the area. Furthermore, as a solution to the Melbourne and Southbank population’s ever-increasing demand for housing, private investors have been converting office space into residential accommodation.
Because the lifestyle the area offers, this redeveloped stock has proved popular in past, however, Melbourne’s apartment oversupply may put a dampener on the trend in future.
The above trends have resulted in net supply withdrawals of over 12,000sqm over the last year, including around 3,000 in the last six months. Thanks in part to these withdrawals, net absorption for office stock in Southbank has remained positive at around 2,000sqm over the last six months.
If one statistic shows how impressive demand for office space in Southbank is, it’s the area’s level of vacancies. At only 4.1 per cent, this number is lower than that of both Melbourne and Sydney’s CBDs.
If one statistic shows how impressive demand for office space in Southbank is it’s extremely low level of vacancies.
Part of the reason this number’s so low is the high levels of stock withdrawal by investors redeveloping, which has seen total stock fall from 431,967sqm in 2011 to only 405,737sqm in March this year. There has also been some volatility in vacancies, most notably when Freshwater Place was built in 2009, which saw vacancies climb to 11 per cent.
Increasing white collar employment demand has put immense pressure on falling stock levels. This has seen D-grade office space fall to 0 per cent vacant, C grade to 1 per cent, B grade to 5.1 per cent and A grade to only 4.4 per cent.
Those looking to rent space may not have an abundance of choice, but with the the guidance of an experienced local real estate agent, it’s still possible to accommodate any demand given time and expertise.
Average rent continues to climb
The current range for prime stock is $460/sqm and $570/sqm, but secondary stock is available for lower than $300/sqm.
Consistent rent increases are a clear symptom of the low vacancy, high demand environment in the Southbank office market of late. Since at least mid-2011, average rents for prime space have steadily climbed, while average rents for secondary stock showed more subdued growth.
In July 2015 increases in the average rent for prime space kicked into another gear. Since then they’ve climbed from around $420/sqm to $500/sqm, increasing by 10 per cent in the past year alone. The current range for prime stock is $460/sqm and $570/sqm, but secondary stock is available for lower than $300/sqm – proving that the area can be affordable no matter your budget.
As usual, rent increases are accompanied by yield compression. Southbank investment yields for prime space have dropped steadily settling at an average of around 6 per cent – although it’s certainly possible to find property with a higher yield if you have sound market knowledge and professional guidance.
It’s likely that investment yields will fall even further, as there are no signs that investment demand or rental growth will slow any time soon.