St Kilda Rd Shakes off vacant Slumber to be a Quiet Achiever – 12 Apr 2012


THE St Kilda Road office market vacancy rate has moved below the 10 per cent mark for the first time in three years, according to recent data by Jones Lang LaSalle.

St Kilda Road has performed quietly over the past 12 months, recording 24,000 square metres of net absorption, JLL says. This has caused vacancy to tighten for four consecutive quarters from 13.7 per cent early last year to 9.6 per cent in the first quarter of this year.

JLL’s fringe office leasing manager, Richard Norman, said leasing activity along St Kilda Road had been driven by competitive rents and quality leasing options.

Unsurprisingly, landlords that held quality space with either an existing fitout or were willing to offer incentives had achieved leasing success, he said. This had been reflected in the data, which shows vacancy in A-grade buildings on St Kilda Road at just 5.5 per cent.

Mr Norman said uncertainty about the outlook for business revenue had put pressure on some tenants to cut fixed costs to protect their profit margins. ”This has augured well for St Kilda Road. On a net face basis, St Kilda Road offers amongst the cheapest rents not only in Melbourne, but right across Australia,” he said. The tightening vacancy across the broader fringe office market had pushed tenants towards the area. In February, Lemon Baxter negotiated two leases at 607 St Kilda Road, the former Centuria Property Funds building. Alfred Health took three floors, totalling 2407 square metres, for an initial period of nine years at a starting net rent of $260 per sq m.

French multinational Sodexo, which moved from Hawthorn in December 2010, signed a seven-year deal across 1288 sq m at a net rent of $240 per sq m. These follow other renewals within the building by Celgene, Six Degrees, Software AG and BDA Marketing. Lowe Lippmann, Australian Grand Prix and Jacobs also entered contracts for a total of 5000 sq m at 616 St Kilda Road.

Centuria sold No. 607 this month for $28.54 million to a private investor. The deal represented an investment yield of 8.23 per cent.

JLL’s Victorian research analyst, Nicholas Wilson, said the outlook for St Kilda Road was positive. ”Risks on the supply side remain negligible,” he said.

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