Commercial Property Outlook 2008 - Victoria

Commercial office and retail leasing tightened and rents rose across Melbourne in 2007. There is every expectation this will continue through 2008, based on strong tenant demand and low vacancy levels.

Although around 180,000 square metres of new commercial space is expected to come onto the market this year, about half is already leased and the strong positive net absorption will take up the rest.

Retail investment activity remains strong, particularly in the Melbourne growth corridors of Craigeburn to the north, Cardinia to the south east and Wyndham in the west. In particular is the opening of two new retail centres, featuring supermarkets and speciality stores.

The recently opened centre at Lynbrook to the south east and the soon to be completed Point Cook Town Centre to the west are part of the development plan to provide infrastructure and services to the residential growth areas. Industrial land values are expected to rise as demand increases for limited sites.

Likely strong growth regions include Dandenong, Scoresby, Knoxfield and Ringwood in the east and south east region, as a result of the Eastern Freeway extension and Mitcham-Frankston Freeway.

In the north, the Craigieburn Bypass is opening up of parcels of land which should result in strong land value increases in places such as Epping, Campbellfield and Somerton. To the west the level of commercial real estate activity is strong.

Melbourne’s T2 airport terminal at Tullamarine is being expanded at a cost of $300 million and is one of a series of three projects due for completion over the next four years.

Meanwhile also in the west, Woolworths have signed a 20 year pre-lease for a Melbourne industrial site at Laverton North. Located in the Interchange Industrial Estate, the 228,000sqm facility will be a purpose built distribution centre for the Woolworths liquor sector. The 85ha estate is owned by Goodman International and Linfox property Group. The commercial real estate sector in the regional areas to the east and the north are experiencing solid activity with investors diversifying their portfolios away from what was once seen as traditional areas close to the city.