Vacancy rates in city fringe office markets like Richmond, Cremorne and South Melbourne, locations popular with technology companies and creative startups, are expected to almost double by the end of next year as a wave of new buildings come online, JLL forecasts.
Fringe developers like Riverlee Group, Alfasi Property, the Deague family and Hickory Group are tussling for tenants.
New supply, withdrawals of other buildings and likely demand will all impact vacancy which is predicted to rise to 13.7 per cent by the end of 2021 and reach a second peak in 2024 of 14.3 per cent, JLL estimates.
Vacancy in the fringe currently sits at 7.7 per cent.
Senior research director Annabel McFarlane said she was tracking 55 projects larger than 1000 square metres that could add another 272,700 sq m of office space by 2024.
“That level of projects is bigger than we’ve ever tracked since we started in 2002,” she said.
A growing stable of ASX-listed, tech-focused companies, Seek, MYOB, REA Group, Carsales and Domain among them, are eating up space in Cremorne. Others are moving to amenity-soaked Collingwood, South Melbourne and East Melbourne, driven by record low CBD vacancies and falling incentives.
The fringe’s popularity saw astonishing growth in prime net effective rents, up 9.2 per cent on average each year over the past five years.
But the unfolding coronavirus recession may put a dent in the fringe’s revival. Rents will contract by 9.1 per cent from the first quarter of this year to the last quarter of 2021, JLL estimates.
A faster V-shaped recovery in the economy coupled with reduced supply and bounce in demand could see vacancy peak in 2023 at 12.8 per cent, but a slower recovery will see vacancy rise sharply in 2022 to 15.4 per cent, JLL estimates.
“As demand softens, developers may place projects without pre-commitment on hold and softening rents and yields from reduced demand and increased vacancy will impact the long-term viability of many projects in the fringe,” Ms McFarlane said.
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