Education and coworking space drive deals in Melbourne’s 2017 office leasing market

The Savills Blog

Education and coworking space drive deals in Melbourne’s 2017 office leasing market

Melbourne’s education and coworking sectors have been fuelling demand for office space across the city in 2017, according to industry experts, with a series of major off-market deals underpinning the end-of-year result.

Savills Melbourne’s Office Leasing team has delivered a diverse range of transactions in the past 12 months, with the hallmarks being the large volume of small fitted suites.

The glass ceiling is finally coming off the Melbourne office market’s rentals as we near the end of 2017, with the last sites in Docklands in the final stages of marketing, and further developments unlikely to materially affect traditional CBD grid rentals in the way they have throughout the past 20 years.

Demand is high, vacancy rates are low and we anticipate the vacancy rate to fall dramatically during 2018 and 2019. The current lack of supply would continue until 2020.

Tenants with lease expiries during this period would be well advised to lock in a deal now, prior to the market adjustments. Rental growth is expected to gain momentum during 2018/2019.

We would encourage investors, landlords and developers to concentrate on properties with short WALEs to allow early recognition of changing conditions.

If these players wish to be successful, it might also pay to consider yields to reflect the changing rental market.

Our team has seen the four pillar tenants in the Melbourne market – state government, banks (including NAB and ANZ), IT and communications – start to expand their office footprints this past year. Most others, particularly professional services, are now building growth into their future plans.

The education market remains buoyant, while serviced offices/coworking spaces now account for 5.0 percent of the market and continue to grow.

Small fitted suites also continue to be highly sought after.

Among these recent deals are WeWork for 5,964sq m at 401 Collins Street (the whole building), and on the education side, international student pathway provider, Study Group, for 3,114sq m at 601 Bourke Street.

If there are companies not yet “on board” with the market changes, there was still time to take advantage of the convergence of positive conditions.

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