Property group Mirvac has signed up tenants Aecom and Work Club to 7 Spencer, the $480 million, 22-storey office building it expects to complete early next year at Northbank on the Yarra River edge of the Melbourne CBD.
The engineering consultancy has taken 3500 square metres and the coworking space provider 3600 square metres, together accounting for 16 per cent of the 44,500-square-metre building developed and half-owned by ASX-listed Mirvac and half-owned by Japanese developer Daibiru.
The all-electric building would tap the growing market for office space that helped tenants meet their net zero emissions targets amid an undersupply of those buildings and new office towers generally, Mirvac’s investments chief executive Richard Seddon said.
“It’s no question that Melbourne has been lagging some of the strength of recovery office market recovery that we’ve seen in Sydney, particularly Sydney core, and also Brisbane,” Seddon told The Australian Financial Review on Wednesday.
“However, we are seeing really positive signs of recovery now. [In] the last 12 months, Melbourne’s printed positive net absorption of around 36,000 square metres, vacancy is stabilising, as are incentives, and sublease levels are down to around 1.5 per cent.”
He declined to give any detail on Mirvac’s latest valuations for its office portfolio, due to be published with full-year earnings results next month. Mirvac’s valuation for 7 Spencer dropped from $640 million in the first half of 2023-24 to $480 million a year later.
And while he said the eastern seaboard office market was “at or past an inflection point”, the outlook is still uncertain.
The latest figures from data provider MSCI show that while wholesale office funds recorded a positive total return for the second quarter in the three months to June, the rate of return slipped to 0.9 per cent from 1.1 per cent in the March quarter.
Capital values fell 0.3 per cent, making a total 5.5 per cent decline in office funds over the year to June, MSCI said.
“Whilst office returns remained in positive territory, the outlook is still uncertain, and this quarter’s performance is unlikely to provide a definitive signal either way,” MSCI’s Pacific head of private assets research Ben Martin-Henry said.
Seddon said 7 Spencer would benefit from the gravitation of office users to Melbourne’s Docklands precinct from locations on the city’s fringe, such as by supermarket giant Coles from Hawthorn East to Cbus Property’s 720 Bourke Street – a tenant a company source said Mirvac had tried to win.
“There’s a clear centralisation theme, which we think 7 Spencer plays into nicely, whereby the attractiveness of the location, the connectivity, is attracting a lot of tenant relocations,” Seddon said.
“In the last few years, we’ve seen close to 120,000 square metres of relocation from green light fringe locations into the Docklands.”
The topping-out of 7 Spencer on Wednesday – a milestone in the construction of any large building – coincided with a push by the City of Melbourne to make Docklands the city’s first so-called business improvement district.
These are a pattern of partnership found in cities around the world between landowners, businesses and local government to drive urban renewal and activation.
“Melbourne is ready to launch improvement districts,” Lord Mayor Nick Reece said. “We need to pull the trigger now to capitalise on our momentum.”
NSW passed legislation in May to allow the formation of the precincts it called community improvement districts, the first of which is New Sydney Waterfront Company – of which Mirvac, Lendlease and GPT are members – for the stretch of coastline between Walsh Bay and Blackwattle Bay.
“DOCKLANDS HAS ALL THE RIGHT INGREDIENTS – SCALE, MAJOR DEVELOPMENTS AND A CRITICAL MASS OF RESIDENTS AND WORKERS,” SAID BELINDA COATES, THE CHIEF EXECUTIVE OF CONSULTANCY HARPER B. “BUT WHAT IT LACKS IS A SHARED VISION AND DELIVERY MECHANISM.”
7 Spencer is one of five new towers – including Golden Age’s 130 Little Collins Street and Cbus Property’s 435 Bourke Street tower – that are due to be completed by 2030 in an office market still recovering from the COVID-19 lockdown and entrenched working-from-home practices.
Employers who were increasingly clear with staff about expectations for them to be present in the office were still basing their size requirements around having enough desks for the peak weekdays when workers were coming in, Seddon said.
“If you do come into the office on that Tuesday, Wednesday or Thursday, and you’re unable to get a seat … a lot of the sizing of the office space requirement is really around making sure occupiers and the discussions we’re having can accommodate their staff on those peak days,” he said.
“So in other words, it’s less around average occupancy through the weeks, but rather making sure they can accommodate their stuff on those peak days.”