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The vacancy rate within the Near City, similar to the CBD, is at historically low levels, recording as at the July 2006 PCA survey. “A grade” accommodation has all but disappeared with vacancy as at the PCA survey in July 2006. This is reflective of tenants from the CBD moving to the fringes, but expecting a high quality of accommodation in return for any perceived compromises made on staff amenity. In terms of the precincts, Spring Hill with (also a beneficiary of the CBD market tightness), Toowoon with and the Inner South with are tightest Near City markets.
The Milton market at , although not the tightest market at the moment, is the precinct with the greatest recent improvement, down from a vacancy in January 2006 and showing melbourne-valuations.com.au speedy recovery from a recent high of in January 2004. As the Latin American economies mature, foreign capital investment will increase, requiring further development of infrastructure, and in turn making investment in industrial real estate more attractive.
Based on Knight Frank expectations of demand and supply, the Near City vacancy rate is expected to continue at similar levels, until mid-2007 when new supply is available to the market in any great quantum.Rental rates within the Near City markets have shown accelerated growth over the past 18 months to the point where average prime gross effective rents are. This represents an annual growth rate of, on the back of the previous year’s. While the growth rate was lower than that seen in the CBD, it still reflects a remarkable turnaround in market fortunes.
Our expectation is that the average rents will continue to grow, albeit at a reduced rate, largely drawn upwards by rentals achieved in the new construction and a realignment of the traditional ratio between CBD and Near City rents. Expectations are for average annual rental growth over the next three years of per annum. Demand for commercial Near City investments has been strong over the past two years, however with high transaction levels during the prior years there have been limited purchasing opportunities to date in 2006. Among the recent major transactions are the development-opportunity linked sale of 100 Wickham Street.