The East End of Melbourne’s CBD office market is leading the way in rental growth recovery, as demands including premium location, building amenity and sustainability credentials tighten availability. 

According to new data from JLL Research, 16% of the 50 prime CBD office assets across JLL’s rental basket – which tracks 25% of the market – have recorded positive net effective rental growth in the last 12 months, averaging 2% compared with -8% for the wider prime CBD grade market. 

All of these growth assets lie in the East End, which incorporates the Eastern Core, Parliament and Civic precincts.

JLL Head of Strategic Research Annabel McFarlane said the growth trend – first identified in JLL’s report on The Real Melbourne Real Estate Narrative - was a clear sign of green shoots in market recovery, amid elevated total CBD office vacancy. 

Looking to the East End in particular, she attributed its strength to demand for premium location, and a strong focus on benchmark precinct and building amenity that encompassed a shift towards “hotel-style experiences” for office workers. 

“Across the East End you have high-end retail, dining of all types, bars, coffee shops and other lifestyle drawcards that answer the call for connectivity within and around buildings,” Ms McFarlane said. “Beyond that, landlords have also been proactive in refurbishing and redeveloping to accommodate evolving tenant wish list trends, from hotel-style lobbies and concierge services to end-of-trip and gym facilities, and outdoor spaces.”

Ms McFarlane pointed to iconic Collins St as the showcase location, being home to six of the East End’s eight growth buildings, including the landmark 101 Collins St. While the Eastern Core is home to the most offerings, there are examples rippling out to nearby precincts, including 150 Collins Street. 

Kate Pilgrim, JLL Victoria Managing Director and Joint Head of Tenant Representation – Victoria, said demand in the East End was driving pricing tension and, in turn, rental growth.

“As an example, securing a whole floor in a Premium quality building in Melbourne’s West End would be circa $750-$900/sqm net,” Ms Pilgrim said. “This compares with space in 101 Collins St – or other nearby East End properties such as 1 Collins St – where the rent would be circa $900-$1300/sqm net.

“Demand for some assets exceeds supply and it’s not uncommon to find two or three tenants competing for the limited options within the best CBD buildings. We anticipate that as these assets fill, the effect will ripple out to a wider group of assets in good locations over the next 12 to 18 months.”

Restricted sizing availability is also a contributor.

JLL CBD Leasing estimates there are currently 11 active tenancy requirements of 5000sqm or more in the CBD office market – all considering the East End and more than half seeking high sustainability credentials. 

“There are 55 prime grade options in the CBD that can accommodate a 5000sqm requirement,” Ms McFarlane said. “That sounds like a lot, but only 14 of these lie within the East End. Then, when you refine availability further down to buildings with a NABERS rating of 5.5-6 stars, there are just two opportunities offering contiguous floors over 5000sqm.

“Additionally, there’s only one option greater than 5000sqm available in an electrified building,” she continued. “The only asset that has completed the base build electrification process in Melbourne’s East End precincts is 101 Collins St, and with typically very low vacancy, this availability is rare.”

Ms Pilgrim noted that most corporate tenants in Melbourne, both local and global, had net zero or interim net zero targets set for January 1, 2030. 

“JLL Research has identified a clear requirement for more high-amenity, electrified, and 5.5-star NABERs buildings in the immediate future,” she said. 

However, prime location and amenity remained the key drawcards for tenants, over and above sustainability – but not to its exclusion.

Ms McFarlane said: “What we’re finding is that when people are looking at buildings that meet premium location and amenity requirements, such as a Collins St location, they are happy to then look at sustainability as a work in progress.

“So, in cases that don’t currently meet their requirements, they are happy to instead put their confidence in the intent and ability of landlords to work with them as a partner in achieving the necessary sustainability upgrades over time.”

More JLL readings 

Mapping the future of work - JLL Research | Commo.