Both KPMG and PriceWaterhouseCoopers are rumoured to have agreed to pre-commitments for new space within the Walker Docklands development and a new Southbank tower respectively. Melbourne University has committed to a large tranche of space at 271 Collins Street, Central Queensland University agreeing to terms for 10,000 sqm of space within 120 Spencer Street and Sage Institute to 2,500 sqm at 600 Collins Street. Each of these transactions will result in large areas of backfill space being released to the market.
The next six months of the year will be critical to the office leasing market as a whole. Traditionally the lead up to Christmas is one of the busiest periods of the year. Incentive levels offered by owners to retain existing and attract new tenants remain high. Such incentives assist in encouraging tenants to relocate by reducing the financial burden related to fitout and make-good costs. However they do not disguise the fact that rental levels are high, and incentives have also risen to offset the rent inflation that has occurred. With CPI running at an average of 2.5% over the last 5 years and the standard annual increments found within commercial leases of circa 4%, it is understandable why rents are out of kilter with where they should be. When making rental comparisons it is therefore important is consider the overall effective rent being offered and not necessarily be blinded by the large incentives on offer. However it should be noted that Melbourne rental levels still look attractive when compared with the other major capital cities.
Chris Goodwin is the Principal of Goodwin Property Advisory who specialise in the provision of independent real estate advice to tenants and occupiers of commercial and industrial premises.