Weak local economy to push suburban Melbourne office vacancy rate to 10.6% by December 2013: BIS Shrapnel

BIS Shrapnel is forecasting the metropolitan Melbourne office market to weaken significantly over the next 12 months, with the vacancy rate reaching 10.6% by the end of 2013.

It forecasts a metropolitan-wide negative net absorption rate of around 130,000 square metres over 2012-13, the worst annual rate of net absorption in the post-GFC period and worse than in the 2002–2003 slowdown.

Net office absorption is the amount of space leased minus the amount of space vacated over a given time frame.

The metropolitan office market incorporates the city fringe (Port Melbourne, Richmond, Collingwood and East Melbourne) and suburban office markets extending in a 20-kilometre radius around the city.

In its first half of 2012 report, Colliers calculated the Melbourne metropolitan office vacancy rate at 6.2%, with the highest vacancy rate of 7.7% in the outer east (Box Hill, Mt Waverley, Mulgrave and Burwood) and the lowest in the city fringe (5.5%)

According to BIS Shrapnel, the implications for landlords and tenants are clear, with an “extremely tough two years” ahead for the Melbourne office market.

“It’s already a tenant’s market and conditions for tenants will become even brighter over the next two years," says Maria Lee, senior project manager at BIS Shrapnel and author of the Melbourne Commercial Property Prospects 2012 to 2022.

“Tenants will be well placed to delay leasing negotiations to take advantage of greater leasing incentives and lower rents. Meanwhile, landlords should focus on leasing strategy to preserve cashflows and property values through the downturn.”

The report notes that the CBD and Docklands will be somewhat insulated by the fact that several tenants are centralising from the suburbs. BIS Shrapnel forecasts negative net absorption of 50,000 square metres over 2012–13 before the market turns  positive in the following year.