Building upgrades major drawcard for new tenants

The flight to quality commercial real estate assets is continuing, with prime office rents hitting new highs, while secondary and lower-graded offices lag.

More employers are encouraging staff back to the workplace by moving to better-quality buildings, and landlords are responding to the increasing demand by upgrading their assets.

More competition among tenants fuelled a surge in Melbourne CBD prime office rents in the first quarter. They now sit at $655 a square metre, reflecting growth of 1.6 per cent in the period, and 4 per cent year-on-year.

The latest Fitzroys first quarter Melbourne CBD Office Market Report also shows secondary office rents rose 1.1 per cent in the first quarter to $467 a sq m. However, for the full year, they advanced only 0.4 per cent.

Elevated levels of enquiry have been driven by smaller-sized tenants, Fitzroys says. Its data show the 200 sq m to 499 sq m market received 37.9 per cent of all office enquiries in the first quarter, followed by the 500 sq m to 799 sq m market, with 34.2 per cent.

Tenants looking for 1500 sq m-plus sites represented only 13.3 per cent of enquiries.

“Increased tenant enquiries are being driven by smaller tenants seeking to capitalise on the attractive leasing terms on offer, and employers encouraging staff back into the workplace in better-quality buildings, prompting more landlords to upgrade their assets,” said Fitzroys director Phillip Cullity.

“Tenants are seeking new or recently refurbished spaces; buildings with quality end-of-trip facilities, good sustainability credentials and attractive nearby hospitality options,” he said.

While incentives for both prime and secondary offices in the CBD remain relatively high, those for prime space recorded a marginal decline, according to Fitzroys, reflecting the increased enquiry levels.