Melbourne's suburbs lack new office buildings thus keeping demand high and vacancy rates down reported Colliers International's Melbourne Metropolitan Report.

The report says that six new buildings opened this year, an addition of only 17,000 square meters to the area despite robust demand. Office space demand was positive with 96,043 square meters of net leases made so far.

Only an estimated 29,800 square meters of office space is pending for rest of 2010 and next year. Rob Joyes, Colliers' office leasing director, said developers were still being cautious. ''However, what really kills this discussion is the onerous finance terms the lending markets are offering,'' he told The Sydney Morning Herald.

Amita Mehrotra, Colliers international research manager, said the low investment sales indicate that owners were unwilling to sell suburban assets. ''Private investors and syndicates were the main purchasers during 2010,'' she said. ''Yields have firmed 0.25 per cent over the last six months in all regions.''

She added:''Many business 2-zoned sites purchased for commercial devolvement in the metropolitan regions have since been converted to residential in order to achieve higher returns and the ability to pre-sell the project and obtain funding to proceed.''

Tenant demand for office space was found to be the highest in Melbourne's fringes as well as outer east regions. All regions reported dropping vacancy rates except the south-east area. The outer east vacancies also slowed down to 8.2 percent from 11.7 percent. On the other hand, inner east areas reported a vacancy drop of 5.3 percent from 9.1 percent.

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