Demand recovery underway with third quarter of positive net absorption

• The Melbourne CBD recorded positive net absorption of 5,100 sqm in the quarter. Demand was primarily driven by small tenant moves (<1,000 sqm), centralisation, and expansion. Headline vacancy increased to 18.8%.
• The Melbourne Fringe recorded weak net absorption of -23,900 sqm, while the S.E.S. also posted a negative result of -11,500 sqm. Due to this weak demand, headline vacancy increased to 21.5% in the Fringe and 14.8% in the S.E.S.

Four projects reach completion in Melbourne’s CBD

• Four project completions were recorded in the Melbourne CBD, adding a combined 33,400 sqm to total stock. The Fringe market recorded the completion of 206 High Street, delivering 6,078 sqm, as the S.E.S recorded no new supply.
• JLL is currently tracking five projects under construction in the Melbourne CBD (148,700 sqm), with a further eight in the Fringe (90,300 sqm), and none in the S.E.S. The combined precommitment rate across these projects is 36.1%.

Investment activity picks up in Melbourne’s CBD

• CBD prime net effective rents (PNER) rose 0.3% q-o-q to AUD 310 per sqm per annum (-3.5% y-o-y). Fringe PNER fell -1.4% q-o-q to AUD 280 per sqm per annum (-1.2% y-o-y), as the S.E.S remained unchanged at AUD 235 per sqm per annum (-1.0% y-o-y).
• Prime CBD yields remained stable at a range between 5.75%-8.00%. Fringe prime yields stabilised at a range of 6.50%-9.00%, while S.E.S yields also remained unchanged at a range between 7.75%-8.75%.

Outlook: Melbourne CBD’s demand and investment landscape set to benefit from domestic stability

• The near-term demand outlook is encouraging, with high volumes of existing tenant requirements showing preference for the CBD or centralisation into this market. Decision-making remains stymied by global volatility.
• Liquidity is anticipated to improve in the investment market over the next 12 months, with recent transactions indicating intensifying attention from overseas capital. The stable domestic outlook will act as a tailwind to capital deployment.