Melbourne records over 300,000sqm of new office projects under construction

But only 34% is anticipated to materialise in 2025.

In the final quarter of 2024, there were no project completions in the Melbourne CBD over the quarter, according to a JLL report. The Fringe recorded two completions, delivering a total of around 13,300 sqm. The S.E.S market recorded one completion at 1 Middle Road, which delivered 20,000 sqm.

“JLL is currently tracking 10 projects under construction in the Melbourne CBD (205,663 sqm), with a further five in the Fringe (60,513 sqm), and one in the S.E.S (35,000 sqm). Of this 301,176 sqm total, only 34% is anticipated in 2025,” the report added.

Here’s more from JLL:

The Melbourne CBD recorded negative net absorption over the quarter, totalling around -1,800 sqm. Demand was driven by the large tenant cohort (>1,000 sqm) which recorded nearly 1,300 sqm of net absorption. Headline vacancy stabilised, remaining at 19.8%.

The Melbourne Fringe market recorded weak demand among tenants <1,000 sqm, leading to net absorption totalling approximately -14,000 sqm, and causing vacancy to rise to 20.0%. The S.E.S market recorded positive net absorption of around 2,200 sqm.

Melbourne office market yields soften further and the range widens amidst weak investment activity

CBD prime net effective rents (PNER) fell -3.2% q-o-q to AUD 311 per sqm per annum (-7.2% y-o-y). Fringe PNER rose 1.4% q-o-q to AUD 287 per sqm per annum (-6.9% y-o-y), as the S.E.S. fell 0.4% over the quarter to AUD 237 per sqm per annum (-4.5% y-o-y).

Prime CBD yields softened 50 bps on the lower end to range between 5.75%-8.50%. Fringe prime yields softened 25 bps on the lower end and 50 bps on the upper end, to a range of 6.50%-8.50%. S.E.S prime yields softened 50 bps on both ends to range between 7.50%-8.50%.

Outlook: Melbourne CBD set for gradual occupier demand recovery as yields recalibrate

Demand for the Melbourne CBD is anticipated to improve in 2025, albeit moderately, as large tenants reassess their space requirements towards growth.

Prime yields are expected to further soften as the growing disparity in asset quality and positioning continues to undermine investor confidence. Increased transaction activity is anticipated, which should help narrow the bid-ask spread.