According to Knight Frank, more than 90,000 square metres of speculative office space will be completed next year in the CBD, Docklands and Southbank in new construction projects at 28 Freshwater Place, 550 Bourke Street, 371 Docklands Drive and the refurbishment of 351 Collins Street.
"There is now a very positive sentiment with regards to speculative development, whereas a couple of years ago everyone was doom and gloom. It shook Melbourne up pretty badly in the 1990s," Knight Frank research manager Richard Jenkins said.
"Given there is a fairly good outlook in terms of where vacancy is heading, people have more confidence in speculatively building stock at the moment."
Nearly 150,000 square metres of office space was absorbed each year in the city since 2004, with vacancy levels expected to drop to 7 per cent or lower over the course of this year, and potentially even farther in 2008. Analysts anticipate the office supply will continue to tighten until a new spate of projects currently in planning or under construction are finished in 2009 and later.
"There’s very little accommodation becoming available in 2007-2008 in terms of new office buildings," Colliers International’s commercial leasing director Andrew Tracey said. "There’s clearly a market window available."
Mr Jenkins said market rents were currently estimated at more than $300 per square metre for Docklands and $350 per sqm for the CBD. "We’re now starting to see a little bit more speculative development only because there is strength in market to support it," Mr Jenkins said, pointing to continuing strong demand from tenants and positive forecasts for white collar employment.
But agents and analysts caution that this spate of speculative development represents only a small component of the total city market. "They are there to fill a gap in the mid to end of 2008. It won’t be a long term trend," Hamish Sutherland, senior director of office services for CB Richard Ellis, said.
Speculative office developments are also proving increasingly common in the suburbs, with around 50,000 square metres currently under construction, according to Knight Frank.
Last year, developer First State Developments started construction of the 14,000 square metre Vantage development on the former Vatmi site at 109 Burwood Road in Hawthorn. CGA Bryson is also developing a 15,000 square metre office building in Mulgrave.
Other speculative buildings include Buildcorp Australia’s 7500 square metre office in Railway Parade Blackburn, and Freeman Property’s 9000 square metre office in Redland Drive Ringwood.
GormanKelly director Sandro Peluso said strong rental growth as a result of the Eastlink Freeway is giving developers the confidence to build in the east, even without a tenant pre-commitment.
"Eastlink is already having an effect on achievable rents in the outer eastern suburbs," said Mr Peluso. "The corridor is having its own rental boom in much the same way Hawthorn and Camberwell did when Citylink opened."
He points to the outer south-eastern suburb of Ringwood, where a tenant is paying a high $250 per square metre for a 1600 square metre office building, developed last year on a speculative basis.
However, it’s a different story in the south eastern suburbs where many speculative office buildings in the Compark Business Park and Nexus Corporate Park in Mulgrave are complete and still seeking tenants.