The supply of office space in the St Kilda Road office market has shrunk by almost 20% from its peak in 1992. In the last 6 months, over 15,000m2 of space has been withdrawn for residential redevelopment alone which is equivalent to two buildings the size of 570 St Kilda Road. Virtually no new office construction has occurred in the last 25 years to compensate for the withdrawal. Due to the diminishing supply and consistent demand, the vacancy rate in St Kilda Road is forecast to fall to 15 year lows in the next 18 months. Office rents have continued to grow and importantly incentives have fallen, the net effect being very positive to building owners in St Kilda Road. Investment yields have compressed over the last 12 months and are predicted to firm further due to the “low for longer” interest rate cycle we find ourselves in.
The confirmation of construction of the new Domain rail station will be a big boost for the precinct. With Melbourne projected to be Australia’s largest city by 2030 and the growing momentum by people preferring to live closer to places of work, buildings like 570 St Kilda Road will continue to be eagerly sought by investors.