melbourne metropolitan office research forecast report second half 2012

MELBOURNE METROPOLITAN OFFICERESEARCH & FORECAST REPORT

www.colliers.com.au/research

Investment Activity ReturnsThe vacancy rate in the Melbourne Metropolitan office market increased from 6.2% in March 2012 to 7.1% in September 2012, primarily as a result of a significant amount of backfill space entering the market plus four new buildings have been completed in the last six months, resulting in 13,000m² ofadditional space being added to the market. Tenant demand continued to be consistent and this has led to average net face rents increasing by 3.4% over the past six months. Lease renewal activity remained strong across Melbourne Metropolitan office market.

The City Fringe market exhibited strong growth in rents with a 7.7% increase in rents over the past six months. This occurred despite an increase in the vacancy rate from 5.5% in March 2012 to 7.8% in September 2012. The increase in the vacancy rate was due to approximately 25,000m² of backfill space entering the market.

The South East saw a reduction in the vacancy rate over the reporting period, as a result of no new supply in the market. Within the South East region, the Clayton vacancy rate remains the highest of all the suburbs, while the Dandenong vacancy remains one of the lowest.

The Outer East currently has the highest vacancy rate in the Melbourne Metropolitan office market at 7.9% and vacancy has remained stable over the past six months. Major tenants moving to quality buildings resulted in positive net absorption of 8,153m² over the past six months.

Investment demand has remained strong from Private Investors, Owner Occupiers and Syndicates over the past six months. The main focus from buyers has been on fully leased quality assets. For the six months to September 2012, there have been 12 transactions in excess of $5 million, totalling $151 million. This is a significant increase from the previous six months, where four transactions totalling $28 million were recorded. Private Investors were the dominant purchasers during the last six months. There were two properties sold with vacant possession. Average yields have softened by 0.25% over the last six months.

SECOND HALF 2012 | OFFICE

KEY HIGHLIGHTS

• Vacancy is now at 7.1%, it has increased from 6.2% in March 2012.

• Over the past six months, average net face rents increased by 3.4%.

• Average yields softened by 0.25%

S8, 576 Swan Street, Richmond.

MARKET INDICATORS FORECAST - 6 MONTHS

OVERALL PERFORMANCE

NEW SUPPLY

TENANT DEMAND

VACANCY

INCENTIVES

FACE RENTS

EFFECTIVE RENTS

CAPITAL VALUES

YIELDS

MELBOURNE METROPOLITAN OFFICE MARKET INDICATORS

Region Stock (m²)

Vacancy Rate (%)

Average Net Face Rents ($/

m² pa)

Average Outgoings ($/m² pa)

Incentive Range (%)

Average Capital Value

($/m²)

Average Market Yield*

(%)

LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH

TOTAL 2,810,298 7.1%

CITY FRINGE 889,820 7.8% $320 $380 $65 $90 12.5% 20.0% $3,000 $5,000 8.00% 9.25%

INNER EAST 550,397 6.9% $310 $355 $50 $80 10.0% 12.5% $3,000 $4,750 8.00% 8.75%

OUTER EAST 769,351 7.9% $235 $310 $40 $60 10.0% 15.0% $2,500 $3,750 8.25% 10.00%

SOUTH EAST 376,902 4.9% $220 $260 $40 $55 12.5% 15.0% $2,000 $3,000 8.75% 10.00%

NORTH & WEST 223,828 5.9% $215 $260 $35 $45 12.5% 15.0% $2,250 $3,500 8.25% 10.00%

*Equivalent Revisionary Yield Data correct as at Q3 2012 Source: Colliers International Research

Economic Update GDP GROWTH REMAINS STRONG The June Quarter 2012 ABS Gross Domestic Product (GDP) data showed robust growth for the Australian economy during the quarter. In seasonally adjusted terms, GDP increased 0.6% during Q2 2012, down from a strong 1.4% in Q1 2012, taking through-the-year GDP growth to a strong 3.7%. The main contributors to expenditure on GDP during the quarter were household final consumption, general government final consumption and net exports. In terms of industry sectors wholesale trade, transport and professional, scientific and technical services each industry contributed 0.1 percentage point (pp) to the increase in GDP.

INTEREST RATEFor the fifth time in the past 12 months, the Reserve Bank of Australia (RBA) decided to cut the official cash rate at its monthly board meeting. This saw the RBA reduce the cash rate by 25 basis points from 3.50% to 3.25%, as of October 2012. This latest fall has seen the cash rate decline by 150 basis points over the past 12 months, from a high of 4.75% in October 2011. The key driver behind the board’s decision was the recent deterioration in the outlook for the Australian and global economy.

INFLATION RATE REMAINS LOWThe latest inflation data from the Australian Bureau of Statistics (ABS) shows that annual headline inflation rose just 1.2% during the 12 months to June 2012, compared with a rise of 1.6% through the year to March 2012. This saw the Consumer Price Index (CPI) grow by 0.5% during the quarter and ensures that the inflation rate remains well below the RBA’s target range of 2% to 3%.

AUSTRALIAN DOLLAR REMAINS STRONGOngoing uncertainty over European sovereign debt issues, combined with the slow pace of economic growth and recovery in the United States has seen the Australian Dollar remain strong over the past 18 months. This saw the Australian Dollar trade at $US110.62 in July 2011, the strongest rate on record. After fluctuating above and below parity with the US Dollar over the first half of 2012, the recent round of quantitative easing (QE3) announced by the US Federal Reserve has seen the Australian Dollar recently trade between $US1.02 and $US1.06.

UNEMPLOYMENT FALLSThe August 2012 monthly ABS Labour Force data shows that the Australia employment market continues to remain tight. The latest results saw the unemployment rate decline by 0.1 percentage point (pp) from 5.2% in July to 5.1% in August 2012. This saw the number of people employed decrease by 8,800 to 11,498,100 and the number of people unemployed decline by 10,600 people to 622,600 during the month. Another key component behind the fall in the overall unemployment rate was a 0.2pp decline in the labour force participation rate to 65.0% in August 2012.

Western Highway

Nepean Highway

Monash Freeway

Burwood Road

Princes Highway

Wester

n Ring

Roa

d

Moorabbin

South Yarra

Mentone

Dandenong

Mulgrave

Mount Waverley

Burwood

Hawthorn

Bayswater

Ringwood

Preston

Moonee Ponds

Footscray

Altona

Sunshine

Box Hill

Heidelberg

20km

10km

North

OuterEast

West Melbourne CBD& City Fringe

Richmond

5km

Camberwell

15km

Doncaster

Princes

Freeway

Eastern Freeway

East Link

Eastlink

SouthEast

InnerEast

MELBOURNE METROPOLITAN OFFICE MARKETS

COLLIERS INTERNATIONAL | P. 2

RESEARCH & FORECAST REPORT | SECOND HALF 2012 | OFFICE | MELBOURNE METROPOLITAN

Key Market IndicatorsMELBOURNE METROPOLITAN FORECAST WHITE COLLAR EMPLOYMENT GROWTH SEPTEMBER 2012 TO MARCH 2013

VACANCY BY PRECINCT

AVERAGE NET FACE RENTS

Source: Deloitte Access Economics / Colliers International Research

Source: Colliers International Research


-8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

Wholesale TradeConstruction

Electricity, Gas, Water and Waste ServicesInformation Media and Telecommunications

Other ServicesAdministrative and Support Services

Retail TradeRental, Hiring and Real Estate Services

Health Care and Social AssistanceTransport, Postal and Warehousing

Total

Professional, Scienti�c and Technical ServicesManufacturing

Education and TrainingPublic Administration and Safety

Accommodation and Food Services

Arts and Recreation ServicesAgriculture and Mining

Financial and Insurance Services

Sep-12Mar-12Mar-11 Sep-11

8%

6%

4%

2%

0%

1%

3%

5%

7%

9%

Total Metro Market

7.0%

5.9%

5.0%4.8%

7.7%

6.8%

6.1%5.9%

6.8%

6.4%

4.5%

5.2%

6.7%

5.9%6.1%

5.7%

6.2%

5.5%

5.0%

City Fringe Inner East Outer East South East North & West

7.1%

7.8%

6.9%

7.9%

4.9%

Sep-12Mar-12Mar-11 Sep-11

$200

$150

$250

$350

$400

$300

$100

$50

$0Total Metro Market

$225$233 $238 $238

$220$225

$245 $250

$310 $310$325

$350

$325$333

$260

$273

$240 $240

$310 $315

$262 $267$278

$287

City Fringe Inner East Outer East South East North & West

VACANCY INCREASED IN MOST MARKETS•Melbourne’s metropolitan office vacancy rate

increased from 6.3% in March 2012 to 7.2% in September 2012.

•During the six months to September 2012, net absorption in Melbourne’s suburban office market was -10,774m², while net supply was 12,840m².

•The South East region saw the greatest drop of 1.89%, from 6.8% in March 2012 to 4.89% in September 2012.

•Approximately 47.000m² of new office space is expected to be completed over 2012 and 2013; however the majority of new supply is pre-committed.

NET FACE RENTS CONTINUE TO GROW•Net face rents continued to increase across all

regions in the Melbourne Metropolitan market with the exception of the South East region.

•The City Fringe region had the strongest growth among all regions. It recorded a 7.7% increase within six months, achieving $250/m² compared to $325/m² in March 2012.

•The Inner East region recorded a 5% increase within six months, achieving $333/m² compared to $325/m² in March 2012.

•Rents are expected to continue to increase over the next six months.

•Incentives remained stable in all regions except for the City Fringe where they increased by 5%.

WHITE COLLAR EMPLOYMENT FORECAST•Deloitte Access Economics provides

quarterly findings on white collar employment growth forecast.

•Total white collar employment growth for all industries combined was 0.7% between March 2012 and September 2012. It is forecast to grow by 0.3% until April 2013.

•The white collar component of the professional, technical and scientific services is forecast to have the strongest growth of 2.8%, while the Agricultural & Mining industry is forecast to experience the strongest decline of -3.5%.



511 Church Street, Richmond.REA leased 4,300 m² at $415/m² pa.

City FringeBACKFILL SUPPLY INCREASES CITY FRINGE VACANCY•The City Fringe vacancy increased from

5.5% in March 2012 to 7.8% in September 2012. No new supply was completed in the region during the last six months.

•The main reason for the increase in vacancy in the region was the addition of backfill supply to the market. This includes:

- 181 Victoria Parade, Collingwood – 7,420m²;

- 79-81 Victoria Parade, Collingwood – 2,200m²;

- 650 Chapel Street, South Yarra – 3,000m²;

- 678 Victoria Street, Richmond – 3,000m²; and

- 850 Lorimer Street, Port Melbourne – 2,500m²

•With only 3,500m² of new supply due for completion during 2013 and consistent tenant demand, we expect the vacancy rate to decline.

•The City Fringe region experienced negative net absorption of 18,961m² for the six months to September 2012.

•The vacancy rate in Richmond is now at 8.2%, while Collingwood has the highest vacancy rate in the region of 42.6%, with 22,956m² available for lease. This is mainly due to a large amount of backfill space entering the market.

•Port Melbourne has been impacted by Government contractions, planning changes and declining government spending. This has resulted in 15,000m² of backfill space entering the market.

MARKET SEGMENTATION IN RICHMOND•The Richmond market has been segmented

into three precincts:

- Church Street precinct: The Church Street precinct is popular with tenants who are keen to attract younger generations (e.g., Generation Y). This was a key driver of REA group’s relocation from the Victoria Gardens precinct to the Church Street precinct.

- Victoria Gardens precinct: The types of tenants locating in this area tend to be firms looking to upgrade from premises in the Inner East. The Inner East currently has limited options, particularly for new space and as a result Victoria Gardens is a viable alternative. This trend was reflected by Freelance Global moving from Hawthorn to 600-610 Victoria Street, Richmond.

- Botanicca precinct: Civil engineering groups such as Fulton Hogan and Golder & Associates and global firm GE Capital dominate the Botanicca precinct due to its proximity to the freeway network. Expansion of office space by existing tenants is a key driver for the precinct.

•Existing Richmond tenants are highly unlikely to move out of Richmond, meaning the market is set to tighten as demand for office space continues to come from surrounding suburbs like Hawthorn.

RENTS INCREASE IN THE REGION•Average net face rents increased by an average

of 7.7 % over the past six months and are currently at $320/m² – $380/m² pa. Rents are expected to remain stable over the next six months.

•Incentives increased by an average 5% over the past six months and currently range between 12.5% - 20% and are expected to remain stable over the next six months.

SALES ACTIVITY REMAINS STRONG•In the City Fringe region there were seven

sale transactions in excess of $5 million that occurred between March 2012 and September 2012, totalling $90.8 million.

•Three out of these seven transactions were vacant possession sales, with two properties being purchased by Owner Occupiers. These transactions included:

- 100 Wellington Parade, East Melbourne, purchased by The Royal Australian College of General Practitioners for $23 million at $3,685/m²; and

- 57-61 Balmain Street, Richmond purchased by Spec Property Group for $7 million at $5,000/m².

•Other major investment sales transactions in the region included:

- 15-31 Pelham Street, Carlton sold for $20.6 million to Forza Capital at $3,489/m² reflecting a yield of 8.6%; and

- 11-17 Dorcas Street, South Melbourne sold for $14.38 million at $3,701/m² reflecting a yield of 8.18%.

•Average yields in the City Fringe region softened over the last six months and currently range between 8% - 9.25%.

•Average capital values declined slightly from $3,250/m² - $5,000/m² in March 2012 to $3,000/m² - $5,000/m² in September 2012.



Inner EastINNER EAST VACANCY INCREASED TO 6.9% •Vacancy in the Inner East region increased

to 6.9% in September 2012 from 5% in March 2012.

•Two new buildings were completed during the past six months totalling approximately 3,100m² – 6-12 Elizabeth Street, Camberwell, a speculative development of 1,100m²; and 917 Riversdale Road, Camberwell, another speculative development of 2,000m².

•The Inner East region experienced negative net absorption of 7,568m² over the six months to September 2012.

•The biggest drop in vacancy was in Balwyn where vacancy declined from 8.1% in March 2012 to 5% in September 2012.

FLIGHT TO QUALITY LOCATIONS•Demand continues to be predominantly

driven by local occupiers looking to expand and tenants considering consolidating their operations to a central location.

•One of the key trends in the Inner East region was the movement of large tenants relocating to CBD / Docklands for consolidation of operations.

•Major tenants, including Penguin Books, will move from Camberwell to Docklands and have leased 7,000m² of office space. Another example was the relocation of BUPA from Hawthorn to the CBD, taking 12,000m².

•Priceline moved from Bayswater to Penguin Book’s backfill space at Camberwell and the Skilled Group moved from Box Hill and leased Telstra’s backfill space at Hawthorn.

RENTS INCREASE IN THE REGION•Average net face rents in the Inner East

region increased over the past six months and now range between $310/m² - $355/m² pa. We expect rents to increase further over the next six months.

•Incentives remained stable in the region over the past six months and currently range between 10% - 12.5% and are expected to remain stable over the next six months.

INVESTMENT SALES •There were two major sale transactions in

excess of $5 million between March 2012 and September 2012:

- 863 High Street, Armadale sold for $14.5 million at $4,557/m², achieving a 8.25% yield based on estimated fully leased market rent. This property is a new building with 50% vacant at the time of sale and the vendor gave a two year net rent guarantee on the vacancy.

- 108 Power Street, Hawthorn (a two year old building fully leased to five tenants) was sold for $17.5 million at $4,680/m² achieving a 8.47% yield.

•Average yields in the Inner East region softened by 25 basis points over the past six months and are sitting at 8% to 8.75%.

•Average capital values declined slightly from $3,250/m² - $4,750/m² in March 2012 to $3,000/m² - $4,750/m² in September 2012.

108 Power Street, Hawthorn.Sold for $17.5 million to IOOF in June 2012 at $4,680/m²



Outer EastABSORPTION REMAINS POSITIVE•Vacancy in the Outer East fell marginally

from 8.0% in March 2012 to 7.9% in September 2012.

•Only one new building was completed during the last six months – 2 Nexus Court, Mulgrave totalling 5,500m², with 4,500m² already pre-committed to Carlisle Homes.

•A total of 54,300m² is currently under construction and due for completion between now and 2014. Approximately 80% of the area under construction is already pre-committed.

•Mulgrave had the biggest vacancy drop from 11.8% in March 2012 to 7.2% in September 2012.

•Box Hill had the highest vacancy increase from 3.9% in March 2012 to 7.5% in September 2012. This was mainly due to backfill space at 30-32 Prospect Street, Box Hill (3,000m²) and 836-850 Whitehorse Road, Box Hill (3,755m²).

TENANTS MOVING TO QUALITY BUILDINGS•Some tenants in the Outer Eastern office

precinct moved their businesses to new buildings that offered better quality construction and operational cost savings.

•Largely, tenants in Mulgrave are choosing to stay in the area.

•Some of the tenants are upgrading their premises to gain benefits from new Green Star buildings.

•Major leasing transactions in the Outer East region over the past six months included the following:

- Melbourne General Practice Network leased 1,525m² at 6 Lakeside Drive, Burwood East;

- Pronto Software leased 1,500m² at 378 Burwood Highway, Burwood East; and

- Ambulance Victoria leased 800m² at 1 Lakeside Drive, Burwood East.

•Net face rents in the region increased during the past six months with average rents now ranging from $235 - $310/m² pa. Rents are expected to increase in the next six months as a result of declining vacancies and consistent tenant demand in the region.

•Incentives remained stable and are expected to hold over the next six months.

CAPITAL VALUES AND YIELDS REMAINED STABLE•362 Wellington Road, Mulgrave was sold for

$8.8 million in April 2012 to a private investor reflecting a capital value of $2,437/m² and a yield of 10.07%.

•Average capital values in the region remained stable and are now ranging between $2,500/m² and $3,750/m².

•Average yields softened by an average of 25 basis points and are now ranging between 8.25% and 10%.

6 Lakeside Drive, Burwood EastMelbourne General Practice Network leased 1,525m².



South EastVACANCY TIGHTENS TO 4.9%•Vacancy rates in the South East region

declined from 6.8% in March 2012 to 4.9% in September 2012.

•In the past six months there was a positive net absorption of 7,123m² in the South East region.

•There is currently no new supply under construction for the region.

•Clayton had the biggest vacancy drop from 44.2% in March 2012 to 31.7% in September 2012.

LEASING ACTIVITY CONTINUES IN DANDENONG•Dandenong vacancy decreased further

from 9.2% in March 2012 to 7.6% in September 2012.

•Australian Red Cross Society leased 952m² at 311 – 319 Lonsdale Street, Dandenong.

•The South East region has a lack of large contiguous space options for tenants, currently there are only three options over 1,000 m² available for lease.

North & West VACANCY DECLINED MARGINALLY TO 5.9% •Metropolitan Melbourne’s North and West

regions are the smallest office markets, representing 8% of the total metropolitan office market. Total vacancy decreased to 5.9% from 6.1% in March 2012.

•The net absorption between March 2012 and September 2012 was positive 627m².

•A five storey building at University Hill was recently completed. It has delivered 4,400m² to the market and 2,400m² of this is already pre-sold, leaving 2,000m² available for occupancy.

•Average rentals in the region increased marginally from $205/m² pa - $260/m² pa in September 2011 to $215 - $260 /m² pa in March 2012.

RENTS AND INCENTIVES REMAINED STABLE•Despite the decline in vacancy and increased

tenant demand, rents and incentives have remained stable over the past six months.

•Average net face rents continue to remain steady averaging $240/m² and ranging from $220 – $260 / m² pa.

•Incentives continue to remain stable and range from 12.5% to 15%.

INVESTMENT SALES•Average capital values remained stable over

the past six months; they range between $2,000/m² and $3,000/m².

•Average yields remained stable currently sitting between 8.75% and 10%.

•There has been only one major sale in excess of $5 million within the South East region over the past six months, being that of 55 Robinson Street, Dandenong. This property was sold in June 2012 for $6.6 million to a Private Investor. The sale price reflected a capital value of $2,418/m² and a yield of 9.22%. This property is fully leased to the Family Law Courts until March 2017.

•There was only one sales transaction in excess of $5 million over the six months to September 2012. 172 – 186 Moreland Road, Brunswick was sold for $12.9 million at $3,058/m² reflecting a yield of 10%. This property is fully leased to Centrelink, with a short lease period remaining.

•Average capital values remained stable over the six months to September 2012. Capital values currently ranges between $2,250/m² and $3,500/m². Average yields softened over the past six months and currently range between 8.25% - 10%.

311 – 319 Lonsdale Street, DandenongRed Cross leased 1,000m² at $250/m² pa.



New Supply Pipeline

DEVELOPMENT UPDATE

Address Suburb Total Area (m²) Status Estimated Completion Date Comments

City Fringe

S8, 576 Swan Street Richmond 8,200 UC 2013 4,300m² Pre-committed

649 Victoria Street Richmond 13,000 DA Approved 2013 Pending Pre-commitment

588 Swan Street Richmond 14,000 DA Approved 2015 Pending Pre-commitment

Inner East

248 Burwood Road Hawthorn 3,000 DA Approved 2013 Speculative development build by Hacer Group

Chadstone Office Building Chadstone 13,000 DA Approved 2013 Pending Pre-commitment

6-12 Elizabeth Street Camberwell 1,100 Complete Q3 2012 Speculative development

917 Riversdale Road Camberwell 2,000 Complete Q3 2012 Speculative development

Outer East

2 Nexus Court Mulgrave 5,500 Complete 2012 4,500m² Pre-committed by Carlisle Homes

4 Nexus Court Mulgrave 5,500 Under Construction Q4 2012 4,300m² Pre-committed by Bristol-Myers Squibb

Building B, 296 Ferntree Gully Road Mount Waverley 6,000 Under Construction Q1 2013 5,500m² Pre-committed by Schneider Electric

Building C, 296 Ferntree Gully Road Mount Waverley 6,000 Under Construction Q2 2013 4,000m² Pre-committed by Olympus

6 Nexus Court Mulgrave 7,000 Under Construction 2013 5,200m² Pre-committed by ADP

50 New Street Ringwood 2,500 DA Approved Q4 2013 Speculative development

917 Whitehorse Road Boxhill 20,000 Under Construction 2014 Precommitment by ATO

North & West

240 Plenty Road Bundoora 4,400 Complete Q2 2012 University Hill - 5 Storey Office Building




Major Office Suite Developments

MAJOR OFFICE SUITE DEVELOPMENTS UPDATE

Address Suburb Region NLA (m²)

No. of Suites

Size of Suites

Capital Value ($/m²) Comments

9 Yarra Street South Yarra CF 7,500 62 33-895 $7,250-$8,000 New office development with construction completed and 100% of offices sold

15-87 Gladstone Street South Melbourne CF 5,000 71 40-500 $3,900 - $4,200 Construction completed in March 2011, 1 suite remaining for sale.

401 Docklands Drive Docklands CF 1,300 192 44 - 132 $4,100 -$5,000 6 office suites remaining for sale.

181 St Kilda Road St Kilda CF 1,900 18 75-343 $5,900 - $6,600 Residential development with 2,050 m² of strata offices over 2 levels. 100% vacant. Recently completed.

"Tooronga Commercial Corner Toorak and Tooronga Roads"

Hawthorn East IE 4,000 33 62-236 $5,300 - $5,900 Development completed in Dec 2010. 2 office suites remaining for sale

202 Ferntree Gully Road Notting Hill OE 4,250 26 180-360 $4,000 Construction now complete with only 1 office left for sale

400 Canterbury Road Surrey Hills OE 1,900 11 74-261 $4,800 100% sold.

12-14 Claremont Street South Yarra CF 2,206 12 62-326 $6,500-$7,500 6 office suites sold.

240 Plenty Road Bundoora N 3,950 39 48-291 $4,250 - $4,500 University Hill - 5 storey office building. Construction commenced, 13 suites sold.




LEASING ACTIVITY

Address Suburb NLA (m²) Tenant Net Face Rent ($/m² pa)

City Fringe

19-29 Cromwell St Collingwood 780 Abundant Media $185

70 Jolimont Street East Melbourne 518 iCare $310 g

369 Royal Parade Parkville 818 UGL Infrastructure $275

369 Royal Parade Parkville 500 Inner North West Medical Local Limited $275

650 Lorimer Street Port Melbourne 1,300 SAI Global $265

120 Bay Street Port Melbourne 569 Defence Housing Australia $320

511 Church Street Richmond 4,300 REA Group $415

576 Swan Street Richmond 4,300 Undisclosed $380

600 Victoria Street Richmond 1,200 Emerald Group $335

658 Church Street Richmond 460 Paragon Publishing $320

101 Cremorne Street Richmond 976 Enterprise Support Pty Ltd $330

658 Church Street Richmond 2,700 Smart Group $315

7 Howard Street Richmond 250 Coty $315

68-70 Dorcas Street South Melbourne 520 Pernod Ricard Australia $270

650 Chapel Street South Yarra 510 Stellar $340

155 Roden street West Melbourne 906 Whitelion Inc $205

355 Spencer Street West Melbourne 2,558 SAI Global $340

Inner East

21 Shierlaw Av Canterbury 982 TSA $254

1183 Toorak Road Camberwell 700 Coca Cola Amatil $280

192 Burwood Road Hawthorn 600 BUPA $280

290 Burwood Road Hawthorn 1,100 Holcilm $355

381 Tooronga Road Hawthorn East 1,000 Liberty Oil $290

81-89 Cotham Road Kew 1,203 Planet Innovation $285

Outer East

26-28 Prospect Street Box Hill 383 PVS Work Find $275

378 Burwood Hwy East Burwood 1,500 Pronto Software $240

1 Lakeside Sr East Burwood 800 Ambulance Victoria $240

6 Lakeside Drive East Burwood 1,525 Melbourne General Practice Network $240

551 Blackburn Road Mount Waverley 500 Skilled $230

253-269 Wellington Road Mulgrave 575 Australian Grief and Bereavement $226G

310 Ferntree Gully Road Notting Hill 564 Tetra Pak $215

10 Caribbean Drive Scoresby 750 Network Neighbourhood $185

South East

311-319 Lonsdale St Dandenong 1,000 Red Cross $250

Recent Market Transaction Activity

Source: Colliers International Researchg denotes gross face rents



INVESTMENT SALES ACTIVITY

Address Suburb Sale Date Sale Price NLA Capital Value Yield* Vendor Purchaser

City Fringe

15-31 Pelham Street Carlton Apr-12 $20,600,000 5,905 $3,489 8.60% McMullin Group Forza Capital

100 Wellington Parade East Melbourne Apr-12 $23,000,000 6,242 $3,685 N/A Delios RACGP

Levels 1 & 2, 155 Cremorne Street Richmond Jun-12 $10,600,000 2,444 $4,337 8.58% Deal Corporation Private Investor

Level 4, 12-14 Claremont Street South Yarra Jun-12 $6,210,000 1,171 $5,303 8.80% Frid Corp Private Investor

11-17 Dorcas Street South Melbourne Jul-12 $14,380,000 3,885 $3,701 8.18% John Crane Asian Investor

57-61 Balmain Street Richmond Jul-12 $7,000,000 1,400 $5,000 N/A Undisclosed Spec Property Group

1 Palmerston Crescent South Melbourne Aug-12 $9,000,000 3,000 $3,000 N/A RACGP Alpha Partners, JAK

Inner East

863 High Street Armadale May-12 $14,500,000 3,182 $4,557 8.25%** Little Projects Vantage Property

108 Power Street Hawthorn Jun-12 $17,500,000 3,739 $4,680 8.47% LAS Investments IOOF

Outer East

362 Wellington Road Mulgrave Apr-12 $8,800,000 3,611 $2,437 10.07% Investec John Chua

South East

55 Robinson Street Dandenong Jun-12 $6,600,000 2,729 $2,418 9.22% Hyperion Property Private Investor

North & West

172-186 Moreland Road Brunswick Jun-12 $12,900,000 4,218 $3,058 10.00% Australian Unity Paul Marks

Recent Market Transaction Activity


* Exchange Date ** Equivalent Reversionary Yield

MAJOR INFRASTRUCTURE PROJECTS

Infrastructure Project Location Start Date Estimated Completion Date Comments

Road

Peninsula Link Frankston to Mornington Peninsula 2010 Q1 2013

Work on the Peninsula’s largest infrastructure project commenced in early 2010 and is expected to be completed in early 2013. 27km of freeway standard road. The $759 million Peninsula Link project will bring many benefits to people living in and visiting Frankston and the Mornington Peninsula.

M80 Ring Road Upgrade Edgars Road to Plenty Road 2009 Q2 2014 (Phase 1)

$2.25 billion upgrade, jointly funded by the state and federal governments, to include widening and improvements. The upgrade is being completed in sections, with the most congested sections and those with the worst safety record being worked on first.

Infrastructure Update

Source: Colliers International Research, VicRoads, State Government of Victoria



OutlookMelbourne’s metropolitan markets have performed consistently over the last six months, driven by stable tenant demand and limited new supply. Only 32,700m2 of office space is currently under construction. Of this around 70% has already been pre-committed. Some resistance is still there for committing to new projects, primarily due to funding constraints. Consistent tenant demand and limited new supply will keep vacancy stable over the next six months.

For most of the regions, net face rents have increased during the last six months. We expect rents and incentives to remain stable over the next six months.

Private investors, owner occupiers and syndicates have begun to return to the Melbourne metropolitan office market. Following a relatively slow start to the year, investment sales activity has improved significantly. This can be evidenced from 12 transactions in excess of $5 million which were completed for the combined value of circa $151 million between April 2012 and August 2012. We expect this trend to continue as investors currently focus on the fully leased quality assets. On the flip-side, average yields have softened by 0.25% during past six months but are now expected to remain stable over the next six months.

Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections.

Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. COPYRIGHT - Colliers International 2012.

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RESEARCH & FORECAST REPORT | FIRST HALF 2012 | OFFICE | MELBOURNE METROPOLITAN

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melbourne metropolitan office research forecast report second half 2012

Documents

inflation rate

highest vacancy rate

clayton vacancy rate

strong growth

official cash rate

cash rate decline

average yields

past sixmonths