With a record-breaking number of office deals and 163,100sqm leased in the Melbourne metro office market in 2022, exceeding both Sydney and Brisbane metro office markets. Momentum has carried through to 2023 with 70 deals secured in the fringe and metro markets within the first five months of 2023 representing 42,776sqm in total leased office space.

Demand for workspace in the metropolitan areas surrounding Melbourne’s CBD has continued to soar during the first quarter of 2023, particularly in the city fringe, where areas such as Collingwood, South Yarra and South Melbourne continue to attract several leading businesses and young talent.

Colliers National Director Travis Myerscough said the city fringe is particularly of interest due to its already established amenities surrounding the office buildings, providing a more varied work/life offering where office and lifestyle services seamlessly connect.

“Amenity within and surrounding the office space has become more important than ever for businesses, as buildings and its office space are being utilised differently now compared to pre- pandemic, and we’re no longer just utilising the office and its surround between 9am to 5pm. With more flexibility offered to employees around working arrangements, offices in areas that are activated during many hours of the day have become more desirable.”

“Tenants are also looking to upgrade their space and location, resulting in new buildings and quality A-grade stock being quickly absorbed in the city fringe, while we have seen a vacancy in lower grade buildings increase,” said Mr Myerscough.

Colliers Melbourne Metro Vacancy Report notes that vacancy has reduced significantly for A Grade buildings in the Metro markets, reducing from 16.5% at September 2022 down to 12.9% at March 2023. In contrast, B Grade vacancy has only reduced from 14.7% to 14.5% over the same period, and C Grade vacancy has risen from 10.5% to 11.4%. This highlights the continued flight to quality and amenity.

2023 is looking to be another strong year for the Melbourne metro office market, with a record number of close to 100,000 sqm of new supply set to be completed in buildings 5,000sqm and over. However, a lot of this space has already been committed.

Colliers’ Associate Director of Research Jodi Birch said, “Other than the one-off hit to demand which occurred over the six months to September 2020, due to Melbourne’s pandemic lockdown, healthy demand in every period since has absorbed a strong pipeline of supply".

“With unemployment in Victoria low and growth of white-collar jobs above pre-pandemic levels, office demand is expected to strengthen as the flight to quality continues. This should see the majority of new or A-grade stock absorbed over the next 12 months, as tenants upgrade and leave “B” &” C” grade options and compete for the increasingly limited new and A-grade stock available on the market,” said Ms Birch.

Rob Joyes, Colliers Victorian State Chief Executive, added that fewer projects have commenced in recent years due to lockdowns and uncertain market conditions. We will likely see an undersupply of stock in the short to medium term, especially in the city fringe market.

“While there are several projects identified beyond 2024, many have not yet received development approval, and without a pre-commitment, they are either unlikely to proceed or unlikely to be delivered within the next five years.”

“Businesses looking to relocate and upgrade their space should probably consider doing that this year, as new supply will be limited next year, particularly in the city fringe,” Mr Joyes concludes.