Looming Melbourne office shortage to cost $7b

Looming Melbourne office shortage to cost $7b

9 November 2018

A new report from planning consultants Urbis predicts a looming shortage of office space in Melbourne’s CBD could ultimately cost the state economy as much as $7 billion in lost jobs, reports the AFR.

The 104-page report, commissioned by the Property Council of Australia—which is pushing for reforms to CBD planning rules—analyses expected growth in the city’s working and residential population to 2036.

To accommodate that growth, Melbourne’s CBD will need another 9.1 million square metres in floor space, including 4.4 million square metres of commercial space.

Recently, the AFR reported that Melbourne is experiencing a $7.4 billion boom in office towers, apartments, and hotels.

By May 2018, the city had 44 separate projects under construction in commercial hubs of inner-city Melbourne, according to CoreLogic figures.

This building boom was predicted to increase Melbourne’s office market by 170,000 square metres in 2019—the strongest growth in supply in more than a decade—and by 290,000 square metres in 2020.

Even so, according to the Urbis report, current planning controls and the extent of constrained land mean the CBD is “theoretically capable of accommodating the required floor space growth, but only just”.

“This analysis implies very little growth potential for the CBD beyond 2036, while it should also be recognised it assumes all available sites are developed to their maximum potential; a highly unlikely outcome,” it said.

“Simply put, the CBD is facing an imminent shortage of sites to accommodate the forecast growth.”

The Urbis report extrapolates the impact of a constrained CBD for lost jobs if the amount of office space required cannot be developed.

That amounts to $7 billion because CBD jobs generate more economic value than jobs outside the CBD.

Urbis says its projections are conservative and assume that jobs which cannot fit into the CBD remain in Victoria.

“Given the nature of the relevant industries choosing to locate in the CBD, if opportunities do not exist to establish in the Melbourne CBD, some businesses will choose to locate elsewhere in Australia or even overseas.”

In 2016, Melbourne’s CBD produced $67 billion towards the national economy, just behind the Sydney CBD’s $81 billion contribution.

The report investigates factors limiting new office space: residential development, lack of viable sites, and CBD planning controls introduced by the current state government.

“In summary, for Melbourne’s CBD to remain competitive it needs to prepare planning controls that support and facilitate commercial development ahead of non-employing uses,” it said.

The PCA’s Victorian executive director Cressida Wall said the report showed the need for a key CBD planning instrument (C270), to be amended.

“We know Melbourne already has the lowest amount of office space available of any capital city in Australia, having dropped from 4.5 per cent to 3.6 per cent over the six months to July 2018, and the city simply can’t afford to see that diminish further.”