Whilst there are some early signs of improvement and tentative return to confidence, the majority of the quarter has seen a slowing of the market with across the board rises in vacancy. A slight increase in leasing activity has recently been observed, coming off a low start to 2009. Although weaker than 2008, the Melbourne office market is tracking stronger than the Australian average.
Suburban leasing - although the market has continued to soften since the third quarter of 2008, limited developments in the pipeline will prevent oversupply. Vacancies are projected to rise into 2011 and then a potential undersupply due to the reduction in speculative developments. Tenants are being lured to modern, environmental high quality new buildings with strong incentives, allowing backfill to poorer grade premises.
Sales - the office market continues to exhibit weak investment activity with low demand, decreasing value and increasing yields. Private investors are dominating sales activity.
Outlook – whilst there are some early signs of improvement, the Melbourne office market will continue to display a preference for fitted space, with landlords of non-fitted space offering increased incentives. Above average subleasing activity will be maintained, together with new office space entering the market in the short term and downward pressure on rents.