Melbourne dominates commercial property market

Victoria continues to be the strongest property market in Australia, with NAB’s Commercial Property Index revealing Melbourne leads the way in the retail, office and industrial markets.

Despite the strength of the Victorian market, the index as a whole fell 1.4 points in December, driven by a poor-performing industrial sector, although office, hotels and retail improved slightly.

NAB chief economist Alan Oster says all segments of the commercial property market are currently oversupplied, but supply is expected to tighten in the office and industrial sectors in the next three to five years.

Victoria’s strong performance was driven by a resurgence in the state’s industrial market, while Queensland continues to record negative conditions across all categories at -26 points.

Although Melbourne leads the retail market, there has also been a big improvement in Sydney. Survey respondents were asked to nominate the best and worst performing retail markets and their location, with a net balance of 51% nominating Melbourne, up from 46% in September last year.

Sydney was the next best by margin, with a net balance of just 6%, while the CBD remains the most favoured location for retail property, with most categories in Melbourne outperforming the other cities.

With regard to the office market, Melbourne remains the strongest while Brisbane remains the weakest performer, even prior to flooding, and is expected to remain so over the next 12 months.

Performance conditions were classified as “good” in Perth and Sydney, with Sydney expected to record the strongest improvement over the next 12 months.

Meanwhile, another report reveals Melbourne’s CBD has the lowest vacancy rate of all Australian capital cities, with just 6.3% of empty office space.

According to the Property Council of Australia, Melbourne’s vacancy rate fell from 6.5% to 6.3% in the six months to January despite supply additions of almost 50,000 square meters.

Nationally, the office vacancy rate fell from 10% in July last year to 9.5% in January. The largest fall was in Brisbane, which fell from 10.9% to 9.4% while Sydney’s vacancy rate fell from 8.5% to 8.2%

According to the PCA’s report, net absorption for much of Melbourne has come from Docklands while Southbank has emerged from a double digit vacancy figure. The suburbs are also performing well, with a vacancy rate of 7.3%.

Glenn Lampard, associate director of global research and consulting at CB Richard Ellis, says demand will outweigh supply until at least 2013 when the new NAB building is completed in Docklands.