Central Melbourne’s 20-year drought of new office investment is the driving force behind the wave of development that is keeping commercial crane numbers high in the Victorian capital.
Five large-scale office projects alone account for 12 cranes – more than half of the 21 in the inner-city’s commercial total – as developers Cbus Property, Charter Hall, QIC, Mirvac and Brookfield bring on a new supply of offices with large floor plates and the technology underpinning 21st-century workplaces.
“The great thing driving the new supply is tenants’ demand for large floor plates and modern premises to meet the needs of their workforce,” says Charter Hall managing director David Harrison.
“There’s a war for talent. If you want good people you’re going to have to give them a modern workplace that provides agility, flexibility and all of the amenity you can build into a brand new building – that’s a bit more difficult in 30-year-old buildings that need to be repurposed.”
There have been new buildings constructed recently, including the BHP-tenanted 171 Collins Street and Westpac’s Melbourne headquarters at 150 Collins.
However, the current wave of development activity in Melbourne’s traditional city centre – due to get an estimated 600,000-square-metres of new space over the next 3?? years – reflects a vacancy rate in the low 3 per cent range, a clear sign that employers in the country’s fastest-growing city want more.
It’s a heady time to be in the cranes business.
“We generally are given three or four months notice [when a developer needs a crane], sometimes as little as three or four weeks,” says Guy Caelli, a director of Melbourne-based General Cranes, which has about 60 cranes in operation across the city.
“It just depends on the size of the project and the type of crane they need and how specialised it is.”
The latest Crane Index from consultancy RLB shows Melbourne’s total crane number has come off slightly in the past six months. Commercial cranes dropped back in the CBD from 25 to 21, as greater Melbourne’s tally slipped to 24, from 27.
But the total remains higher than its level a year earlier and it also excludes cranes working on large mixed-used projects, such as Cbus Property’s 447 Collins Street “Pantscraper” project.
“That market has softened a little bit but there is still strong demand in 20- to 25-storey buildings out in suburbs and around the CBD,” Caelli says.
And even without the same number of new office projects in Melbourne as in the NSW capital, the city remains busy, he says.
“We haven’t seen the office demand as strong in Melbourne as they are getting in Sydney because there is still enough coming through to bolster the market.”
It’s taken time for central Melbourne to digest the source of new supply that has come in Docklands, on the western edge of the traditional Hoddle Grid, but that era is now ending, Harrison says.
“You’ve obviously had nearly one million square metres of office added to Docklands in the last 20 years which has somewhat removed the viability of new development in the CBD,” he says.
“As Docklands has filled up … people like us with Wesley have been able to make newer development viable.”
Charter Hall this month topped out its 35-level tower at 130 Lonsdale Street in the developer’s Wesley Place precinct, and the demand for newer-style CBD office accommodation is why the 60,000sq m tower is fully leased well ahead of its mid-2020 completion, he says.
“We’ve got three major super funds – Telstra Super, Cbus and AustralianSuper – all moving out of buildings they’ve been in for 20 years,” Mr Harrison said.
Even so, the lack of suitable sites to develop – and planning considerations such as the state government’s so-called C270 rules limiting floor space ratios and requiring setbacks – will be a curb on activity in the CBD.
Developers are already being forced to amalgamate sites to get suitable size, as Dexus did last year with the Reserve Bank’s 60 Collins Street tower and the neighbouring 52 Collins Street.
They are also competing for new sites coming to market, such as rail utility VicTrack’s Treasury Square site, currently up for grabs.
“I’ve been doing commercial real estate in Australia for 32 years and in all my career you could have always identified 20 or more development sites to build office projects in Melbourne, and in the last five years I think the number of sites has probably diminished to less than three,” Harrison says.
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