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The brakes are on Melbourne's office rental growth

17 January 2020

Weakening business conditions and a flood of extra office space hitting the Melbourne CBD has put the brakes on our city’s office rental growth.

Commercial office rental growth has been increasing for four years in Melbourne, but weakened to 4.1 per cent year on year in December, down from around 12 per cent the year prior.

Gross effective rents in Melbourne are predicted to remain flat for the rest of 2020 and then are expected to fall in 2021.

Head of research at Cushman and Wakefield, John Sears, spoke to Australian Financial Review.

“Office rental growth rates in Sydney and Melbourne have recorded some of the slowest growth since 2014,” he said.

“We are witnessing the continuing signs that the office leasing market has reached a turning point, which supports our view that the capital growth cycle for many Australian commercial real estate markets has already reached its peak.”

Kernel Property tenant representative Steve Urwin told AFR the take-up of new developments in Melbourne had been good but the re-letting of office space left vacant as tenants departed for new offices would cause the industry a massive hangover.

“You don’t need a tsunami warning system to know that the big wave is coming to Melbourne in 2020,” he said.

“Given the construction delays on a number of the new assets, and some substantial refitting/refurbishment work of the premises being vacated by the firms relocating, it will be the end of the year before the bulk of the backfill space is available to occupy.”

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