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- Market conditions that have arisen thanks to COVID-19 have pushed office incentives in the Melbourne CBD to levels not seen since the early 90s
- CBRE senior research analyst Nick Baring said after a sustained growth in rents and a contracting of incentives over the last decade, COVID-19 has put a dent in proceedings
- Incentives have risen significantly to avoid long-term vacancies, rising from 26.83 per cent in Q1 2020 to 36.97 per cent in Q1 2021
- “The primary driver of the sharp rise in incentives over the last 12 months has been business contraction due to flexible working, sparking sublease availability to reach unseen levels across Melbourne,” Baring said
- The CBD vacancy has risen to 8.2 per cent in Q1 2021, according to CBRE, which has pushed institutional landlords to offer rent-free periods, contributions to fit-outs and early access as incentives
Market conditions that have arisen thanks to COVID-19 have pushed office incentives in the Melbourne CBD to levels not seen since the early 90s.
Incentives are payments or concessions offered by a landlord of an office building to entice new or encourage existing current tenants to sign onto a lease.
CBRE senior research analyst Nick Baring said after a sustained growth in rents and a contracting of incentives over the last decade, COVID-19 has put a dent in proceedings.
“A combination of record levels of supply, an increase in flexible working and the explosion of sublease availabilities across CBD markets has seen landlords adopting creative methods to secure tenants, translating into shifts that will be experienced throughout 2021 and 2022,” he said.
Baring said rents have declined 12.9 per cent over the past 12 months to $404 per square metre and are forecasted to decline to $391 in Q4 2021.
Similarly, he said incentives risen significantly to avoid long-term vacancies, rising from 26.83 per cent in Q1 2020 to 36.97 per cent in Q1 2021. This has also been felt in Melbourne’s suburban markets.
“The primary driver of the sharp rise in incentives over the last 12 months has been business contraction due to flexible working, sparking sublease availability to reach unseen levels across Melbourne,” Baring said.
According to a University of Melbourne report in September 2020, 59 per cent of Victorians were mostly working from home, with nearly 70 per cent of Australians wanting to continue working from home.
In April, City of Melbourne data showed foot traffic had returned to 72 per cent of pre-COVID levels, their highest since the beginning of the pandemic.
Melbourne city workers have even been enticed with perks including free cocktails and movie tickets to lure them back to the CBD.
The CBD vacancy has risen to 8.2 per cent in Q1 2021, according to CBRE, which has pushed institutional landlords to offer rent-free periods, contributions to fit-outs and early access as incentives.
“The significant increase has already occurred and incentive increases are beginning to plateau through 2021,” Baring said.
“However, despite H1 21 showing promising signs for Melbourne’s office market, with some sublease withdrawal and leases, and larger corporations becoming more active in the leasing market, incentives are unlikely to begin to recover until Q1 2022 in the CBD and Q2-3 in metropolitan Melbourne.”
Baring said this is due to continued high levels of supply not being proportionate to demand as well as the rise of hybrid working models.
