This article is from the Australian Property Journal archive
RENT in Australia’s office towers are rising faster than anywhere else in the world, according to Knight Frank’s latest Skyscraper Index.
Melbourne and Sydney led growth in the six months to Q4 of 2016, at 11.0% and 10.6% respectively.
Stock withdrawals to make way for the Metro project and residential conversions put downward pressure on supply in Sydney, whilst Melbourne recorded the strongest level of net absorption in 2016.
The report looks at rental rates in commercial building of more than 30 storeys in global cities. A number of the cities returned no or negligible changes, with Frankfurt with 5.9%, Toronto with 4.7% and Chicago at 3.4% next in line for growth.
Knight Frank’s head of office leasing, Australia, David Howson, said Melbourne’s vacancy rate was at a decade low of 6.4%, with limited supply and further rent growth ahead.
“Unusually for Melbourne in recent years, the level of new stock additions will be lower in the next 24 months at 113,242sqm or 1.3% stock growth per annum. This is well below the long-term average of 3.6% per year.
“The Victorian economy is currently the strongest in Australia, and is supported by high population growth into Melbourne of 2%, which is boosting the underlying demand for office space. With the vacancy rate expected to head towards 4% in the next year, the upwards pressure on rents will remain,” he said.
Howson noted that Sydney’s gross effective prime rents are currently at a 60% premium to Melbourne’s.
Sydney saw 239,057sqm of stock removed from the market during 2016, contributing to vacancies falling to 6.2% and perhaps as low as 3.5% over the next two years.
Howson said withdrawals were for either refurbishment or permanent withdrawals, such as conversion to residential or hotel use, and recycling of sites to future office developments. The withdrawal of 11,500sqm at 301 George Street, to make way for the Wynyard Place development was a key example.
“The Metro project will also trigger significant withdrawals of space, mostly in 2017, accounting for some 62,000sqm along, and this will be a major contributor to the further 102,289sqm of Sydney CBD office stock to be withdrawn this calendar year,” Howson said.
He said the recent new supply had been high, largely driven by the Barangaroo developments, but had been largely balanced by the withdrawals.
“The next two years of supply is only modest, and the total stock of the CBD is expected to decline over this period. However, there is a very strong supply cycle building for 2020 and beyond. Net absorption of office space in the CBD is also high driven by buoyant financial and construction sectors,” he added.
Hong Kong remained home to the world’s dearest office rates, at US$3,257.93 per sqm, well clear of second-places New York’s Manhattan at US$1,711.46 per sqm.
In third place was Tokyo, followed by San Francisco, London (City) and Sydney, which all had rates above US$1,000 per sqm.
Boston, Shanghai, Singapore and Chicago rounded out the top 10, followed by Beijing, with Melbourne in 15th place with US$547.74 per sqm, compared to Sydney’s US$1.047.78 per sqm.
Key Asian markets Singapore, Shanghai and Seoul all returned negative growth in the six months of 4.2%, 2.0% and 4.8% respectively.
Knight Frank chief economist James Roberts said the strong performance for Melbourne and Sydney reflect local market factors.
“If we set those cities to one side, the general picture from the latest Skyscraper Index is flat growth, which reflects the nervousness in most office markets in the second half of last year over political risks, like Brexit and the US election.
“However, in 2017 the tone of global economic news is improving, and both Brexit and the Trump government have not had the negative impact on growth that was initially feared. When we compile the next skyscraper index in the summer, I expect to see more cities reporting rental growth in tower buildings,” Roberts said.
Australian Property Journal
