Melbourne has surpassed Sydney as the country’s biggest CBD office market for the first time, with new building completions pushing its total above 5.1 million square metres of commercial space, according to analysis by JLL.
Even though the Victorian capital has just overtaken Sydney’s 5 million sq m, it now resembles a ghost town amid a second crippling lockdown and its CBD vacancy rate has surged as most of the city’s white-collar workers continue to work from home under stage four restrictions.
Since February, when the Property Council reported a 3.2 per cent vacancy rate, Melbourne’s office vacancy rate has more than doubled to 7.7 per cent as of the end of June. JLL expecting this will peak at more than 11 per cent next year.
At the end of June, Melbourne’s total CBD office stock rose to 5,107,840 square metres after the city added a total of 313,700 square metres of new office space with a number of landmark towers completed.
The total figure includes 228,040 square metres of Southbank Riverside office stock, across the Yarra, which JLL classified as part of the CBD but which the Property Council considers part of the CBD fringe.
Sydney, where the CBD office vacancy rate has surged to 7.5 per cent at the end of the June quarter from 3.9 per cent in January, is not far behind Melbourne with just over 5 million square metres of office space.
Despite the surging vacancy rate, JLL’s senior research director for Victoria Annabel McFarlane said the Melbourne office market metrics were different in this recessionary cycle from those experienced in the 1990’s recession.
“In the 1990’s Melbourne added close to 850,000 square metres of CBD stock over a four-year period (1989-1993) largely speculatively built. Vacancy reached 26 per cent in 1993.
“This time it is estimated that Melbourne will add close to 550,000 square metres (2020-2024) and pre-commitment levels for the nine new assets (433,738 square metres) that have completed this year or are already under construction are at 87 per cent. “
Office projects completed during the second quarter include Cbus Property and Keppel REIT’s Victoria Police Centre at 311 Spencer Street, offering 65,000 sq m of office space, Lendlease’s Two Melbourne Quarter tower at 697 Collins Street with 46,350 sq m of office space and Dexus’s 80 Collins Street with 42,960 sq m of office space.
Other projects completed in the Melbourne CBD earlier this year include Mirvac and Suntec REIT’s Olderfleet building at 477 Collins Street (56,584 square metres), Charter Hall’s Wesley Place at 130 Lonsdale Street (55,000 square metres) and Cbus Property and ISPT’s Collins Arch at 447 Collins Street (47,517 square metres).
JLL’s Victorian managing director Craig Shute said Melbourne’s rapid rise was testament to its balanced economic drivers.
“We are confident Melbourne will rebound relatively strongly as we recover from the current COVID-19 restrictions and re-open for business,” he said.
JLL has been tracking office stock in Melbourne’s CBD since 1970, when the size of the market was just 1.45 million square metres.
“The most significant contribution to this growth has been Docklands as a new CBD precinct, delivering just over 1 million square metres of new, high quality office stock,” Ms McFarlane said.
Melbourne and Sydney’s CBD office markets are now comparable in size to international CBD office markets including Madrid, which stands at 6.5 million square metres, Barcelona at 4.9 million square metres and Berlin at 4.5 million square metres.