Melbourne Office Vacancies to Surge on Glut, Morgan Stanley Says

Melbourne Office Vacancies to Surge on Glut, Morgan Stanley Says
By Nichola Saminather - Apr 8, 2013

Melbourne’s office vacancy rate will jump to about 11 percent this year from about 8 percent now, as supply outpaces demand, Morgan Stanley said.

http://www.bloomberg.com/news/2013-04-08/melbourne-office-vacancies-to-surge-on-glut-morgan-stanley-says.html

About 327,000 square meters (3.5 million square feet) of space is expected to come on the market between now and 2015 in Australia’s second-biggest city, analysts led by Lou Pirenc wrote in an e-mailed report today. Major projects under construction include 107,500 square meters in the North and South Towers on Bourke Street in the Docklands, an extension of Melbourne’s traditional business district; and 30,000 square meters in an office and retail building in the city’s central business district, he said.

“A lot of this supply is in fact pre-committed,” Pirenc wrote. “However, without a pick up in office demand, this new supply is likely to result in a higher level of backfill and sublease space re-entering the market.”

Victoria state, of which Melbourne is the capital, had a seasonally adjusted unemployment rate of 5.5 percent in February, compared with 5.2 percent in New South Wales state and 4.5 percent in Western Australia, and a national rate of 5.4 percent, government figures show. Tenants in Melbourne’s central business district, mainly in the finance industry and government, are consolidating space and relocating to higher- quality buildings in the Docklands, broker CBRE Group Inc. said in a report last month.

“This is an environment where tenants typically have the upper hand in rental negotiations,” Morgan Stanley’s Pirenc said in his report. “With weaker relative demand, and a relatively large development pipeline, we expect landlords will favor filling space and offering incentives, rather than waiting for a better deal.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net
To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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http://www.bloomberg.com/news/2013-04-08/melbourne-office-vacancies-to-surge-on-glut-morgan-stanley-says.html