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It is about to get worse before it gets better for the St Kilda Road office market, which is expected to record a sharp increase in vacancies over the next 12 months because of an exodus of tenants.
Several businesses in the boulevard are relocating to newer, larger offices as part of a trend that Knight Frank expects will balloon the overall vacancy rate from 6.2% to about 7.5% by mid-2009.
Tenants confirmed to be leaving St Kilda Road include Infosys and National Foods, which will leave about 15,000 square metres after their moves to Docklands, and Hewlett Packard, which recently announced it would consolidate offices in suburban Melbourne. Engineering firm Connell Wagner is also rumoured to be Docklands-bound.
A lack of supply in St Kilda Road was causing a number of tenants to look at other rental options to accommodate their growth, Knight Frank leasing director Michael Nunan said.
The agency expects the surge in vacancies to be temporary, and says a lack of new office buildings under construction in St Kilda Road (as opposed to the other major office markets of CBD, Docklands and Southbank, which are having a development boom) will see the market bend back into shape from 2010.
It's been 16 years since St Kilda Road's office vacancy level peaked at 22.4%. According to the Property Council of Australia, the St Kilda Road office market is more than 115,000 sq m smaller than it was in 1992, largely because buildings have been converted into, or demolished and rebuilt, as apartment buildings.
The precinct is often criticised by prospective tenants for its lack of retail amenity and a dedicated train station.
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