For the first time since the ASX traded the building in preference for 530 Collins Street in the early 1990s, the 23-level building will re-open, much to the delight of prospective office tenants, of which there is an abundance looking for CBD space.

The building, on the south-side of Collins Street and in a highly populated pocket of skyscrapers between Queen and Elizabeth Streets, will add 22,000 square metres of A-grade, environmentally sustainable office space to the Melbourne’s CBD’s stock list.

Knight Frank director Michael Nunan is marketing the property, the first substantial lick of Collins Street office space to come onto the market (in the CBD grid, as opposed to Docklands) for some years.

“It’s a very well located building coming into the market while there’s an extreme shortage of office accommodation,” Mr Nunan told The Age. “It meets the criteria tenants expect today including large floor plates and sustainability initiatives.”

The building was built for the ANZ Bank in 1968 has undergone a full refurbishment. This included adding enclosed office space over the building’s forecourt, which added about 1500 square metres to the building’s overall size.

The entrance foyer is a modern mix of glass and stainless steel, with a dramatic water feature.

Mr Nunan said rents in the new building will start at about $300 per square metre.
The timing of a building launch couldn’t be better for the two private investors who own the building, Ai Ong Mah and Siew King Mah, both registered as living in Melbourne’s eastern suburbs.

According to the Property Council of Australia, office vacancy levels in the Melbourne CBD have fallen from a peak of 26.64 per cent in 1993, to just 5.95 per cent today.

For A-grade CBD offices specifically, vacancy levels have fallen from 19.34 per cent to 7.08 per cent over the same period.

Knight Frank Research expects both A-grade, and overall vacancy levels to continue their downward spiral, steadying at a rate of less than 5 per cent early next year.

This office leasing environment, where demand for office space exceeds supply, has resulted in strong rent rises over the last 12 months in particular.

According to Knight Frank Research, A-grade rents now average around $300 per square metre after incentives (the rental discount offered to tenants). This compares to a rate of around $250 per square metre this time last year.

The former ASX office building at 357 Collins Street can command a higher rent given its location in a prime location in an established, and very much “in demand” Collins Street pocket near retail amenity and the Flinders Street train station.

Major tenants to sign for new buildings in the last twelve months include Australia Post which leased space at the SX2 office building on Bourke Street, Victoria Police which re-committed to existing offices in Docklands and the Australian Tax Office which will move to 414 LaTrobe Street.

Other tenants still in the market for CBD space include Fujitsu, which is looking for up to 6000 square metres of office space, Herald & Weekly Times (18,000 square metres) and engineering firm Connell Wagner which is looking for between 8000 and 9000 square metres, sources say.

Net absorption (additional space leased less space vacated) is expected to be a healthy 125,000 square metres in the year to January 2012.

The agency expects about 133,035 square metres of new office supply will be added to the Sydney CBD office market in the next 12 months.

The report anticipates the financial and insurance services sector, and information media and telecommunications companies will drive Sydney CBD leasing activity in 2011.

By the end of this year, according to Colliers International, Adelaide will have the lowest CBD office vacancy – falling from 7.49 per cent today, to 5.3 percent.

Canberra will have one of the highest CBD office vacancy at 12 per cent, a fall from 12 per cent today.

Brisbane’s CBD office vacancy is expected to increase from 9.6 per cent to 12.8 per cent. Like last year, the market is expected to be driven by the professional, scientific and technical services sectors, as well as financial and insurance services groups.

The agency expects CBD office vacancy rates in Melbourne to fall from 6.35 per cent today, to 5.63 per cent in January 2012.

It cites net absorption of 106,000 square metres, but new supply of a low 16,000 square metres.

Led by the public administration and safety sector, Perth is expected to report a slight drop in office vacancy from 9 per cent to 8.59 per cent.

The report is featured in today’s AFR, in an article that also quotes Merrill Lynch research suggesting a drop in incentive levels (total rent paid minus leasing incentives – mostly paid in the form of a rental discount or a contribution to fitout).

ING Office Fund chief executive Tino Tanfara said effective rents (face rents less incentives) had bottomed, buy that landlords and tenants remained cautious. He said demand for space would strengthen as confidence returned.

Colliers International director of office leasing Simon Hunt said almost all tenants looking for more than 1000 square metres of office space would be searching for a high performing building to meet corporate and social responsibility benchmarks, and as competition for staff become more pronounced.

Devine also recently announced a delay of its $500 million Hamilton Harbour project, and the $900 million Brisbane French Quarter mixed use project, both earmarked for the Queensland capital city, The Australian reports today.

Devine announced yesterday its 2009 financial year net profit would fall to around $15 – $17 million, from an anticipated $25 million forecast made in January. Leighton has also reported a sharp dip in profit since last year.

The Property Council of Australia said in January some 50 major office projects nationally had been shelved indefinitely, or cancelled.

The 47-level, A-grade building on the north-east corner of Lonsdale Street, is expected to sell for about $400 million.

Investa tried to offload both properties in 2007, as part of a $1.3 sell off of commercial property assets, that also included in Melbourne the 469 La Trobe Street office building.

Two weeks ago, it was reported a private investor, speculated to be Clemence Lee, is in advanced due diligence to buy Investa’s Wool House building at 369 Royal Parade in Parkville, and an office in Dandenong.

Macquarie Office Trust has been trying to offload the site for more than a year and was originally hoping for up to $42 million last year, the Australian Financial Review reports today. Macquarie, which leases space at 101 Collins Street in Melbourne as its offices, could relocate to the 171 Collins Street building, upon completion, it is reported.

In Sydney, Grocon is understood to be trying to involve itself in the $900 million office redevelopment of 163 Castlereagh Street. That site, owned by John Boyd Properties, could be worth $150 million if Grocon tried to buy it in its entirety. Banking giant ANZ has selected the Castlereagh Street building as the preferred site for its next Sydney CBD office.

The site is opposite the Town Hall station, the redeveoped Sydney Hilton, and will make way for a 44-level, 57,000 square metre office.

Sources describe the Liberal Party’s move to the building as "curious", with one suggesting the office space may become "a war room" for the upcoming election.

The term "war room" comes from a documentary following the primary and presidential strategies of President Bill Clinton, then Governor Clinton, in 1992, when he was campaigning for the US presidency.

A move to 120 Collins Street will put the Liberal Party in close contact with several influential organisations that are tenants. They include the Future Fund, the Australian Securities and Investments Commission, and the Business Council of Australia.

Sources say GHD has looked closely at the AXA building in Docklands, which is available for occupation later this year. A spokesman for GHD said its 10,000 square metre requirement was in response to growth in the organization.

“Our preference is to stay in the premises ourselves until our lease expires in 2014,” said a spokesman. “However given the growth of the organisation, we can’t sit on our hands so we’re making the appropriate decisions.”

A spokeswoman for Deloittes said the group is still pursuing its leasing options.

The space needs to be fitted and ready for occupation by late October, when it picks up the lucrative contract from Tenix Solutions.

Coincidentally, Tenix Solutions was in the same boat as Serco four years ago. It needed to find fitted out space urgently, and committed to the 10,000 square metre 277 William Street office building, because of a lack of options.

Any chance Tenix Solutions might sublet part of its office space to Serco, has been ruled out.

A Tenix Solution spokeswoman said that despite losing the traffic camera contract, it manages another $330 million contract for the government, and needs all the space it has until 2015.

Serco Marketing business development director David Loutit said the group is not finding the CBD office leasing market tight, and expects to make a decision about leasing a new building, shortly.