Investment yields are down in the office market which has been performing reasonably well in recent years driven by the lack of supply. Vacancy rates remain around 4% and whilst there is new supply coming in 2020, approximately 90% of that has already been recommitted.
There is a large lag period in construction of major office buildings, sometimes 2-3 years so supply will be an issue in the short term. Docklands which has supplied much of the new office projects in recent years is almost built out. The CBD has had many C and D grade buildings converted to residential precincts and St Kilda road has similarly seen a shift to residential. So what is going to happen to the office market one might ask? It’s clear that it will decentralise. South Yarra is a prime office precinct in Melbourne and I believe Richmond/ Cremorne will also follow that trend with a young vibrant start up culture, Tech Companies, Creative Agencies, Interior Designers and Architects moving in with urban energy a key driver of this area. Being close to the CBD and a rail network and the young workforce demographic of Richmond/ Cremorne make it attractive as a future high growth office location.