Melbourne's outer east vacancy rate remains above 10 percent: Colliers

Vacancy rate in Melbourne's Outer East region remains elevated and above 10 percent, according to Colliers International’s latest Metro Office report.

“While the Outer East has always been the third pillar of Melbourne’s metro office market, the precinct has now decoupled completely from the City Fringe and Inner East in terms of tenant activity and vacancy," it said.

The vacancy rate remains elevated at 10.7 per cent, a minor increase from 10.4 per cent six months earlier. 

Long-term vacancy rate is relatively high, Colliers said.

The Outer East has traditionally been a supply driven market, in complete contrast to the City Fringe and Inner East, so the average long term vacancy rate is relatively high, at 9.6 per cent.

The supply cycle continues, although at slightly more subdued levels than previous years. Since 2008, the Outer East has added an average of 25,000 sqm of new supply each year.

"We expect that over the year to March 2018, a further 23,000 sqm of office space will be added – the majority of which (14,000 sqm) is at Caribbean Gardens Business Park in Scoresby,” the report noted.

Demand in the Outer East continues to remain subdued, particularly in the secondary grade market, where upgrades to older stock are generally needed for a deal to occur.

“Face rents in the Outer East have remained steady over the year to March 2017, at an average of $308 per sqm for A Grade space."

Incentives are elevated compared to the remainder of the Melbourne Metro market, at 27 per cent.

"We expect these to remain at these levels for the two year forecast period."

There were $168 million worth of sales in the Outer East in 2016.

In Box Hill, there were two sales totalling $50 million, and both of these sales (826 – 830 Whitehorse Rd and 9 – 11 Prospect St) were to developers, the report said.

South East market sees very limited tenant activity in the last half of 2016 according to Colliers.

“The South East market saw very limited tenant activity through the last half of 2016.

Net absorption was -6,300 sqm, even in a climate where supply increased by 4,000 sqm.

Vacancy in the South East is at record high levels, reaching 13.13 per cent in March 2017, against a long-term average of 6.75 per cent.

Despite the high vacancy, incentives are relatively low, at 21 per cent.

This is more due to the nature of owners in the South East, who are predominately local privates.

Given the low demand environment in the South East, and the continued preference of Melbourne’s metropolitan office tenants to locate in the City Fringe, Inner East and Outer East, a significant yield premium can be found on South East office investments.

Average yields for A Grade stock currently sit at eight per cent, well above the Melbourne metro average of 7.09 per cent,” the report stated.

A 1107 sqm commercial office building at Level 2, 195 Wellington Road, Clayton (above) has been listed for sale.

Similarly, the CubeOne, a 88 sqm to 1080 sqm office building at 55 Victor Crescent, Narre Warren (below) has been listed from $409,000.

A 139 sqm office building at C1/756 Blackburn Road, Clayton (below) was recently sold in April this year.

Similarly a 208 sqm office at 97 Springvale Road, Springvale (below) was recently sold in March this year for $800,000.