Port of Melbourne market rent inquiry 2020

We conducted our first inquiry to assess the use of power in setting and reviewing land rents at the Port of Melbourne. It covered the period 1 November 2016 to 31 October 2019.

Scope and process paper

26 September 2019

2019-09-24
Interim report

20 March 2020

2020-03-19
Public forum

31 March 2020

2020-03-31
Final report

14 October 2020

2020-10-13

Overview

The port of Melbourne and its tenants use contracts to set property rents for Port of Melbourne land.

This was our first five-yearly inquiry on the Port of Melbourne's process for setting land rents. It involved assessing whether the port's rent-setting process negatively affects consumers.

Our inquiry assessed the setting and reviewing of land rents at the Port of Melbourne covered the period 1 November 2016 to 31 October 2019.

The inquiry considered whether the Port of Melbourne has:

power in relation to the process for setting and reviewing land rents
exercised power in a way that causes material detriment to Victorian consumers.

As part of the inquiry, we examined the:

process used to set and review land rents
Port of Melbourne’s compliance with this process
extent to which the land rents paid are ultimately passed through to Victorian consumers.

We have released a public report

We handed our report to the Assistant Treasurer in August.

This is our first inquiry under section 53 of the Port Management Act 1995 and covers activities from 1 November 2016 to 31 October 2019.

Key findings

Our key findings are:

The Port of Melbourne has power in setting and reviewing rents. While its power is not unconstrained, reflecting a mix of market characteristics and legislative and contractual arrangements, we consider the Port of Melbourne retains a significant degree of control in relation to setting and reviewing rents.
The requirement in the Port Concession Deed for rents to reflect a ‘reasonable market rent’ are not sufficient to constrain the Port of Melbourne from charging rents above an efficient level and its approach has contributed to significant rental inflation.
The Port of Melbourne’s exercise of its power has caused material detriment. Tenants are incurring inefficient rental costs and higher transaction costs, evidenced by examples of deferred investment, and uncertainty impacting tenants ability to lock in new customer contracts. These impacts have flowed through to consumers.
Remedial action is required to mitigate the Port of Melbourne’s ability to exercise its power and impacts. This includes an enhanced, independently oversighted negotiate-mediate-arbitrate framework.