The size of South Yarra’s office market is set to almost double over the next four years.
The prestigious suburb, about five kilometres south-east of the Melbourne CBD, has a commercial development pipeline of more than 80,000 square metres.
Presently, there is about 97,000 sqm of office space in the area according to Colliers International Research.
Outside of the CBD and Southbank, South Yarra often ranks with South Melbourne, Cremorne and Richmond, as having the city’s most expensive offices to rent.
In 2016, a commercial space built by Vicland at 529 Chapel Street, South Yarra, was marketed as the “world’s best office”.
Vicland is responsible for two mooted South Yarra offices in coming years:
• A 10-storey building awaiting approval to be developed at 11-13 Wilson Street – a car park site Vicland bought off-market from Newmark Capital for $12.3 million last year; and
• A component within a mixed-use complex, approved to be developed atop rail lines opposite the South Yarra train station. The site is known in planning circles as 162 and 164 Toorak Road.
According to Colliers International director Rob Joyes, Newmark Capital is proposing to add the most office space to the suburb by 2023 – some 50,000 sqm within four buildings as part of a revamped and mixed-use redevelopment of its Jam Factory shopping centre.
Goldfield Group is also proposing a 25,000 sqm office at 627 Chapel Street, in South Yarra’s high-rise Forrest Hill precinct.
Goldfield Group paid Fridcorp more than $50 million for 627 Chapel Street, in late 2017. The vendor had planned to replace the office, near the corner of Chapel Street, with an apartment complex.
Another 4000 sqm of commercial space will be added to the Chapel Plaza at 402 Chapel Street, Colliers International said.
“In recent years, large occupiers of 4000 sqm-plus have had to focus on other city fringe areas such as Richmond and Cremorne due to a lack of options in South Yarra,” Mr Joyes said. “Led by the rejuvenation of the Jam Factory, these new projects will open the door for large occupiers to position themselves in this tightly held precinct”.
Mr Joyes said no substantial office building over 4000 sqm has been delivered in South Yarra in the last six years.
“An 80,000 sqm investment in new office space will result in the doubling of this boutique commercial precinct and turn it into one of the next city-fringe office hotspots”.
An undersupply of CBD office space will need to be met by alternative markets
Construction of CBD office space seemed to keep up with demand until 2015 – according to Colliers Research, which points to historical figures showing that for every new head of population, 0.9 sqm of office space is demanded.
“Since that time, however, the increase in population has outpaced CBD supply growth,” Mr Joyes said. “This has contributed to the exceptionally low vacancy we are recording in both the CBD and City Fringe markets”.
Colliers expects this “supply/demand imbalance” to create a greater need for alternative markets.
“Tenant location preferences are continually moving towards greater emphasis on accessibility to public transport and amenity for staff,” Mr Joyes said. “City Fringe markets, particularly those serviced by a train station, are best positioned to capture this demand”.
Mr Joyes said leasing teams are seeing a strong desire from businesses to cater for the lifestyle of their staff.
“People want to work, live and play in close proximity, and South Yarra offers not only easy access to the CBD for meetings, but an abundance of after-hours entertainment…for employees to enjoy”.
Newmark Capital project director Jonathan Bradhurst added South Yarra “continues to evolve, on trend”, with “an exciting line-up of new apartments, food halls, restaurants and gyms” earmarked for construction.
“Businesses across the spectrum of culinary, physical fitness and wellness and entertainment see the value of bringing their services to South Yarra to reach the millennial, educated demographic that makes up nearly 50 per cent of the neighbourhood’s residents”.
Advertising agency Clemenger has recently relocated staff to South Yarra.
“Our agencies get to form part of the creative precinct along Chapel Street, and the competitive overheads mean we can invest in contemporary, exciting office fit-outs that reflect the businesses they house,” Clemenger’s chief financial officer Jonathan Isaccs said of its South Yarra move.
The City Fringe office vacancy rate is just under 4.5 per cent, having circled between 4 and 5 per cent since 2017.