A return to a back-to-the-office culture and a surge in big foreign investors is shining a bright light on the prospects of commercial property in Victoria and the rest of Australia in 2025.
Strong Demand for High-Quality Office Space
The latest office vacancy rates released this week by the Property Council of Australia show strong demand for high-quality office space.
Head of office leasing at Cushman & Wakefield, Tim Molchanoff, told Australian Property Investor that commercial tenants in 2025 prioritize good location and good amenities.
“This is driving significant demand for central core assets across our CBD markets, helping push rents higher, while the fringe and metro markets sit slightly behind,” he said.
“Supply pipelines vary by city, but one thing is evident, economic rents are above market rents across our markets, which will likely hamper the delivery of some proposed projects.
“A tight labour market and an expanding white-collar workforce will fuel additional demand across most of our major markets.”
Foreign Investment and Favorable Currency Conditions
According to Ray White Real Capital Analytics figures, local private investors in 2024 focused on commercial investments under $50 million, while larger transactions were dominated by foreign buyers.
Ray White head of research Vanessa Rader said foreign investors were lured to Victoria by a weak Australian dollar.
“The mid-market segment ($50-100 million) witnessed increased offshore buyer activity as international investors sought to capitalize on favorable currency conditions,” she told Australian Property Investor.
“This price point saw a balanced distribution across sectors, with retail leading transaction volumes, followed by similar levels of investment across office, industrial, and development sites.”
Ms. Rader added that efforts to address the national housing supply crisis have also led to increased residential property development funding and purpose-built rental projects.
Positive Momentum in Melbourne’s CBD Office Market
When it comes to the Melbourne CBD office market, Knight Frank’s national head of leasing, Andrea Roberts, said things were looking up after some challenging periods last year.
“Fit-out costs, construction costs, and interest rate levels prove to be the headwinds to discourage tenant moves, with landlords prudently allocating capital due to the current economic environment,” she told Australian Property Investor.
“Where good quality existing fit-outs are available, it is financially compelling for tenants to stay put or achieve a double deal, but only if the fit-out is of sufficient high quality and suitability to their business.
“The ‘best and the rest’ thematic continues to prevail, with a focus on high-quality, well-located premises that have the best amenity for employees, if not on the doorstep, then immediately adjacent in the precinct.
“Buildings with vacancies in these precincts within capital city markets will continue to outperform their competition where accessibility to critical amenities, especially transport, exists.”
Melbourne’s Commercial Relocations Driving Growth
In Melbourne, businesses relocating to different offices are providing a healthy spike in the commercial property market, according to Cushman & Wakefield’s Marc Mengoni.
“Over the past 12 months, we have seen strong demand from metropolitan occupiers relocating their headquarters to Melbourne’s CBD and inner fringe locations as they seek to improve workplace access and drive cultural change for the next generation of employees,” he said.
“For the time being, market conditions are favorable for active tenants, and most are discovering that not only can they afford better quality offices situated on major transport hubs, but in some cases actually reduce costs.”
