Melbourne office rents must rise: Mirvac

The developer, which is among the prime movers in the current cycle, acknowledged there is a strong supply of buildings hitting the market, including its recently opened 664 Collins Street in Melbourne’s Docklands.

However, Mirvac’s head of office and industrial, Campbell Hanan, says that many of the latest office projects are almost full or have been pre-committed.

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Demand for space is still growing strongly as the city takes up its mantle as the nation’s fastest growing market. But Hanan suggests economic rents may need to rise to cover the higher cost of putting together fresh office sites.

He says many of the towers developed in the current boom — which includes projects by Cbus Property, QIC, Charter Hall Group, Lendlease and by tycoon Lang Walker — are on sites secured before the upturn.

“For the future development sites the land component is of much higher value,” he says. Planning changes requiring larger setbacks will also drive developers to consolidate sites, potentially boosting costs and the rents required to cover costs.

Hanan says once a clearer forecast emerges of the office leasing market around 2021, developers will have a better understanding of the prospects for new towers.

“If this demand, which has been strong for the last 10 years, continues, it will be interesting to see how the city can create future development opportunities,” he says. Hanan notes there is still demand as tenants pour into the city from fast-developing suburbs, where some buildings are being converted to flats.

Another opportunity lies in subdividing floors, a market he says has opened up in the A-grade market as tenants upgrade.

Mirvac is well positioned to capitalise on these trends and last week opened 664 Collins St. It is fully occupied by tenants Pitcher Partners, AGL, ExxonMobil, Nexus Mutual and Fujitsu.

The completion was the final stage in the redevelopment of the Southern Cross Station precinct and builds on the company’s 699 Bourke Street, which opened in 2015.

Both buildings feature a unique design by Grimshaw Architects that has seen the structures “floated” on concrete decks above the rail concourse.

One feature of the tower is the prominent eight-metre-high LED media wall in the lobby. The giant screen will display digital artwork created by design students from Swinburne University.

Hanan says the project is the culmination of more than 10 years of design and construction to deliver a new office precinct in the heart of Melbourne and flagged that the firm was keen to find sites to match its strong pipeline in Sydney and Brisbane.

Pitcher Partners managing partner Brendan Britten praised 664 Collins Street’s purpose-built open plan design and modern working environment in the reinvigorated Docklands precinct.

Grimshaw managing partner Neil Stonell says that creating the new ground plane 15 metres above the rail corridor was “incredibly challenging”, but says the complex stitches together Melbourne’s central business district and Docklands.

This article originally appeared on www.theaustralian.com.au/property.