What was the most notable office project completed in Melbourne in Q2?

It was the refurbishment of an 8,000sqm property.

According to a JLL report, one project reached completion in the Melbourne CBD market, with the 47,800 sqm delivery of 555 Collins Street. One Fringe project delivered 5,400 sqm as two projects completed in the S.E.S delivering 11,800 sqm. 

The most notable metro completion was the 8,000 sqm refurbishment of 1341 Dandenong Road.

Here’s more from JLL:

JLL is currently tracking 10 projects under construction in the CBD (286,600 sqm), with a further 18 in the Fringe (177,500 sqm) and 3 in the S.E.S (46,600 sqm). Lendlease’s 69,500-sqm development at Melbourne Quarter in the CBD remains the largest project under construction throughout Melbourne’s office market.

Occupier demand upheld by pre-commitment transactions ​

The Melbourne CBD recorded a positive quarterly net absorption of 6,800 sqm. This was predominantly driven by a strong number of pre-commitments which eventuated into one newly-completed asset. Headline vacancy increased to 16.2%. 

Both metropolitan markets recorded similar levels of demand, with the Fringe totalling 24,450 sqm and the S.E.S 25,500 sqm respectively. Subsequently, headline vacancy amongst both markets lowered to 15.2% in the Fringe and 11.6% in the S.E.S. 

CBD incentives reach a 30-year high

CBD prime net effective rents (PNER) fell -0.7% over 2Q23 to now average AUD 349 per sqm per annum (-1.8% y-o-y). Fringe PNER fell -0.7% over the quarter to now average AUD 317 per sqm per annum (-2.1% y-o-y). S.E.S PNER fell a further -0.9% to now average AUD 259 per sqm per annum (-2.6% y-o-y). 

Prime CBD yields softened 12.5 bps on the upper end and 50 bps on the lower end to now range between 4.63% - 6.25%. Prime Fringe and S.E.S yields softened 50 bps on both ends to now range between 5.50%–6.25% and 5.75%–6.50% respectively.

Outlook: Hybrid working expected to continue softening demand

CBD leasing demand is expected to remain constant over the remainder of 2023, however the translation of demand into completed deals is expected to remain prolonged. The key factors influencing the leasing market continues to revolve around hybrid working and the economic environment.

The rental market is expected to record moderate growth over 2023–2024, with the expectation that incentives will stabilise over time. Additionally, the divergence between prime and secondary grade stock is expected to favourably accelerate prime rents, as the flight-to-quality theme remains evident. 

Note: Melbourne Office refers to Melbourne's CBD office market (all grades).