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New research shows that in the Victorian capital, Green Star and NABERS Energy-rated buildings are in high demand – and the industry is amping up supply.
Property valuation firm M3 Property has reported that all premium-grade buildings under construction across the city are targeting at least a five-star NABERS Energy rating and most are targeting six-star Green Star ratings.
Given the number of projects in development, that means the market is set to see an influx of green buildings.
M3 research indicates there are 234,593 square metres of premium-grade buildings currently under construction in the Melbourne CBD. There is an additional 57,810 square metres of premium-grade buildings which are at site preparation stage, with construction not yet started, and 85,665 square metres of premium-grade buildings in the pipeline for future construction with permits approved.
M3 Property’s director of Commercial and Industrial, Gary Longden, explained that the burgeoning supply is a response to tenants increasingly requiring energy-efficient office spaces. Many Australia-based businesses have made net-zero 2030 promises, and real estate will play a large part in whether or not they are able to achieve their goals.
“Although there have been limited transactions in 2023 and early 2024, premium-grade office buildings continue to be in demand for occupiers with a strong pipeline of quality stock coming to the market.
“Demand is strong in the top end of the Melbourne CBD office market, with high rental growth in this sector. Achieving and maintaining a high NABERS Energy rating and high Green Star rating is being viewed favourably by tenants from a sustainability point of view,” Longden said.
He added that overseas investors are expected to play a part in firming up the sector.
We expect the Melbourne CBD office market to stabilise later in 2024 to 2025, and for international investors to start returning to the market as capitalisation rates stabilise. Australia’s assets are relatively stable in the global market, and currently we’re seeing Japanese investors active in a counter-cyclical move,” Longden explained.
According to the Property Council of Australia, the premium building vacancy rate is currently 11.2 per cent and is forecast to remain at a similar level for the foreseeable future.
This is in comparison to the total vacancy rate for Melbourne’s CBD office market, which increased from 14.1 per cent in January 2023 to 16.4 per cent in January 2024.
According to M3 director of commercial valuations, Jonathon Close, with the premium end of the market showing a relatively low vacancy rate compared with the city as a whole, “B-grade office buildings are likely to be repurposed, including to A-grade buildings, which may reduce vacancy further over the coming years”.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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