Melbourne’s CBD office market stretches westJune 21, 2016 / By
A decade of development in Docklands is changing how we think about Melbourne’s commercial precincts.
Ten years ago total office stock in the Docklands precinct was approximately 187,500 sqm. As at 2Q16 Docklands totaled approximately 788,100 sqm.
The area bounded by Docklands Park / Flinders Street / Spencer Street / Telstra Dome has become a precinct in its own right and is colloquially referred to as the Southern Cross Precinct. Approximately 70% of all Docklands office stock both completed and under construction is in this area.
Well located with direct proximity to Southern Cross rail station and the Collins Street extension, the Southern Cross Precinct has become a seamless extension of the CBD. As a result the commercial centre of the CBD is being pulled west.
Large floor plates, new build projects and flexible leasing has drawn tenants. Major tenants already located in the Southern Cross precinct include AMP, the Australian Tax Office, Marsh Mercer, Transurban Group and Commonwealth Bank. The tenant profile is of large corporates and a greater proportion of ASX-100 publically listed companies than in the CBD as a whole. Small tenancy options are limited.
Within the Southern Cross Precinct three major projects are the focus of office sector supply, anchored by a number of major pre-commitments. KPMG, the law firm Maddocks Partners, link Financial Services & AECOM are expected to move to Collins Square Buildings 2 & 4 (Dev. Walker Corporation) on completion in late 2016. Melbourne Quarter (Dev. Lendlease) has secured ARUP and 664 Collins Street (Dev. Mirvac) has secured Pitcher Partners with construction of these projects expected to commence this year.
JLL research demonstrates that the shift of large tenants into the Southern Cross Precinct and Docklands has been at the expense of Melbourne’s Midtown precincts. Over the last decade Western Core and Flagstaff Precincts have been significant net losers (-68,340 sqm) of larger tenants (>1,000 sqm). However, total occupied stock over the decade has increased as a diverse range of small tenant occupiers have replaced large tenants in greater numbers (110,600 sqm).
The next 20 years will see occupier trends amplified as Docklands becomes built out.
Collins Street is becoming an important central spine connecting Eastern End precincts with Docklands.
The first wave of lease renewals will provide the ultimate verdict on Docklands. As yet there is little to indicate that tenants intend to leave.
Existing assets in Midtown precincts will benefit from the centralising of office markets and increased focus from new startups looking for smaller tenancies in refurbished older stock.
Projects located in Melbourne’s midtown precincts with planning approval have a unique opportunity to capitalise on the centralisation of office markets. In addition, recently introduced planning restrictions in the Capital City Zone will make larger sites even more important and we will see site amalgamations (where this is possible) drive up site values as Mid-town Melbourne commences a phase of regeneration.
For more details, please take a look at our recently released report
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