Demand in the pre-lease market is now spilling into the fringe office market where vacancy has hit 6.8 per cent.
More than 50 office projects, comprising 615,000sq m, have had plans approved, submitted or proposed in the fringe precincts.
Commercial development sites across like Cremorne and Richmond have continued to drive strong capital growth with local agents now reporting net rents are in excess of $500 per square metre for new office space.
“Those factors – high leasing demand, strong underlying land values, and robust population growth – seem likely to continue to drive a very active investment and development market which is changing the shape of our inner suburbs,’’ Stevens said.
Another factor at play in the Melbourne market is the rise of co-working hubs, with players such as Hub Australia and US giant WeWork expanding rapidly.
The large wave of supply expected in the next few years has raised concerns about the capacity of the market and its ability to absorb that space.
Gross supply will increase by 170,000sq m in 2019 and by 290,000sq m in 2020. Net absorption, meanwhile, is forecast to be about 320,000sq m for the same period.