Sydney and Melbourne to lead office rental growth globally in 2019: Knight Frank

Sydney and Melbourne to lead office rental growth globally in 2019: Knight Frank

15 February 2019

The latest Knight Frank’s Global Outlook Report predicts that Melbourne and Sydney will experience the largest rental growth globally in 2019, with rents forecast to rise 10.1 per cent and 8.6 per cent respectively, says the AFR.

Both Melbourne and Sydney are experiencing tight supply in their office markets due to employment growth and relatively low levels of development completions in recent years.

Prime rents have been rising rapidly in both cities, up by 11.9 per cent in Sydney and 13.9 per cent in Melbourne over the past year.

“2018 saw a supply crunch in both Sydney and Melbourne with dwindling availability and robust absorption, particularly in Melbourne, driving a surge in office rents,” said Knight Frank Head of Research & Consulting for Australia, Ben Burston.

“With a subdued pipeline of development completions yet again in 2019, and sustained demand-side momentum, there is a compelling case for further growth this year,” he added.

Underscoring the growing squeeze on office supply, a series of high-profile leasing deals at Sydney’s Quay Quarter and Melbourne’s 80 Collins Street have set new benchmarks for the cost of top-grade office space.

In Sydney, Deloitte Australia will take up a 10-year lease over 32,000 square metres at AMP Capital’s Quay Quarter Tower at Circular Quay, a $2.7 billion project.

The deal was struck at around $1,400 per square metre in net face rent. This brings the total pre-commitment at project to about 76 per cent, after AMP itself committed to 35,000 square metres in December 2016.

Rival Lendlease has won substantial interest for its $1.5bn Circular Quay Tower, with a 20,000 square metres requirement from Commonwealth Bank rumoured to be in the mix, alongside other prospective tenants, says The Australian

In Melbourne, QIC Global Real Estate has signed up tenants DLA Piper and McKinsey for its new tower at 80 Collins Street, an $800 million development. DLA Piper is taking 4,500 square metres and McKinsey is committed to 2,700 square metres.

Meanwhile, Brisbane’s office market is starting the year with a series of major towers worth more than $300 million in play and investors looking to expand their holdings.

Big players Growthpoint, Charter Hall, M&G and ARA bought in the city last year and, in the latest move, Fortius Funds Management and two private funds run by BlackRock have put 201 Charlotte Street on the block, notes The Australian.

A refurbishment also drew tenants including Zurich, Urbane Homes, Credit Sense and Inter-Financial Corporate Finance.

Justin Bond of Knight Frank said interest had been strong in Brisbane, particularly for CBD assets, with infrastructure investment, population growth and a strengthening economy attracting buyers, along with the affordability of the city compared to southern capitals.

“Limited supply of new offices, following years of under development, mean that many occupiers will feel compelled to enter the market in 2019, and acquire space before someone else takes their preferred option,” said Knight Frank’s Partner, Head of Office Leasing, Australia David Howson.

The Knight Frank report also found that Hong Kong will retain its title as the world’s most expensive office market despite rents being forecast to decrease in 2019. Sydney and Melbourne rank 7th and 21st respectively, in a ranking of the world’s most expensive office markets.

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