Thursday 18 October 2018

Sydney and Melbourne office rents poised for growth of 18pc this year

Rents in the Melbourne CBD are set to rise by more than 18pc, hitting an average of €488 per sq m for premium space
Rents in the Melbourne CBD are set to rise by more than 18pc, hitting an average of €488 per sq m for premium space

Larry Schlesinger

Premium and A-grade office rents in Sydney and Melbourne are set to surge this year as corporate tenants compete for limited space in the country's two top performing Central Business District (CBD) markets, where vacancies sit at just 4.6pc. Advertised rents in the Melbourne CBD are forecast to rise by more than 18pc this year, hitting an average of A$763 (€488) per sq m for premium space and just under A$600 (€383) per sq m for Grade A space by July, according to the latest Colliers International CBD Office Market Report.

In Sydney, Australia's largest city, premium and Grade A advertised rents will rise more than 13pc annually, reaching A$1,094 (¤700) per sq m and A$840 (€537) per sq m respectively.

These increases will be accompanied by a reduction in incentives across the board, pushing up effective rents.

Tenants chasing lower-grade space will not be spared with the cost of leasing Grade B office space forecast to rise by more than 10pc annually this year in Sydney and Melbourne. While the forecasts point to a landlord-dominated market over the next few years, the report also highlights the growth of co-working space providers - among them WeWork, HUB Australia and Spaces - which are now competing for corporate tenants and forcing traditional landlords to raise their game.

"Our view is that the most significant change impacting office markets currently is occupiers' drive towards flexibility," said Simon Hunt, Colliers International's managing director of office leasing.

"Over the next supply cycle, landlords that proactively met the demand for customer-focused and flexible working environments will attract and retain the country's top occupiers, and in turn, build the most attractive investment portfolios in the market," Hunt added. "Over the last two years in particular, the relationship between tenant and landlord has become more about customer and provider, as major corporates view their accommodation strategy as a key driver in the changing way they do business, and indeed interact with their own customers."

Co-working groups accounted for over 10pc of the vacant space leased in Melbourne in the second half of 2017.

These include Spaces, a subsidiary of serviced-office provider Regus, which took two floors in the T&G Building at 161 Collins Street and HUB Australia, which secured new space at 1 Nicholson Street, an office tower owned by Charter Hall.

(Australian Financial Review)

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