Melbourne poised for CBD rebound

It has been an interesting few months for the commercial sales and leasing markets in Australia’s largest capital cities, Sydney and Melbourne. 

In January both Sydney and Melbourne’s CBD vacancy rates climbed one percentage point each, bringing them to 11.3 per cent and 13.8 per cent respectively. 

However, contrary to the latest data, sentiment among commercial property experts, research organisations and media for a rebound of these cornerstone CBD markets remains remarkably positive. 

But why? In this article we will unpack some of the contributing factors that could support a steady resurgence of our CBDs.

Short and medium-term CBD performance drivers

There are several short- and medium-term economic factors that look set to create a perfect storm for opportunistic CBD investments as more people return to work and living in the city. 

Upward pressure on the coastal and regional rental markets (where many Melburnians escaped lockdowns to) is expected to push people back to the city and metropolitan areas where residential leasing traditionally provides better affordability. 

When coupling this with the return of roughly Chinese students to Australia – many of which will return to Melbourne’s inner-metropolitan areas – this is expected to drive rental demand further, in-turn lifting both residential and retail rental rates up by an estimated five per cent, creating increasingly favourable conditions for landlords.

City infrastructure works like the Metro Tunnel (slated for completion in 2025) will also create positive knock-on effects for asset owners, as it will reduce total commute times for city workers and provide added permeability to our civic framework – bringing important everyday and social amenity including bars, restaurants and entertainment venues within closer reach. 

Furthermore, Melbourne’s world-class public events program kicks off in March, spearheaded by major activations like the 2023 Melbourne Grand Prix, the start of the AFL season (go Blues!), as well as the Melbourne International Comedy Festival. All of these will provide a steady stimulus to the CBD retail and hospitality verticals.

City investment opportunities and activity

With the expected return of thousands of people to the CBD, now represents a significant opportunity for savvy investors to make bold commercial property acquisitions, with a view to capitalising on greater city accessibility and the forecasted population surge.

While the Reserve Bank of Australia’s interest rate rises may not plateau until early next year, the stable uplift in sentiment among employers looking to get their staff back into the workplace is underpinning genuine value across many aspects of the commercial property industry.

Some of the key areas of opportunity and activity our experienced sales team has observed recently include:

• Strata investment among beginner and smaller investors
• Premium office space acquisitions among well-established private investors suited to growing small and medium-sized businesses
• Private investor demand and purchases of permit approved CBD land parcels for developments including build-to-rent, office and hospitality

Broader CBD market trends to watch

There is no denying that flexible working arrangements are one of the key reasons CBD vacancy rates are persisting post-COVID. 

However, in a recent article by Australian Financial Review reporter Michael Bleby, many commercial property experts expect demand for quality CBD buildings to curtail stubborn vacancies in prime markets, while boosting the appeal of returning to the office among staff and employee prospects – essentially making the building itself a ‘recruiting machine’. 

In addition, as this flight to quality ramps up to entice workforces back into offices and the epicentres of our economy and culture, there is an emerging opportunity for B-Grade office asset owners to overhaul them with modern-day work, social and sustainability integrations that will tap into the ever-evolving environmental, social and governance (ESG) expectations of the millennial workforce. 

If you would like to learn more about current investment opportunities in the Melbourne CBD market, emerging trends across the broader commercial property sector, or discuss a separate matter, please reach out to us at info@jonesre.com.au