Tech, industrial sectors to reshape Melbourne

The Savills Blog

Tech, industrial sectors to reshape Melbourne

Melbourne’s office and industrial property markets are expected to remain strong in 2019 and beyond, with technology underpinning their growth and evolution.  

Our Melbourne business recently hosted a client breakfast for key clients and industry participants at the Sofitel Melbourne, inviting group chief economists from the National Australia Bank (NAB) and REA Group to share their insights into the direction of commercial property markets in 2019. 

NAB’s Alan Oster and REA’s Nerida Conisbee both agreed that the Melbourne commercial property markets were better placed for growth than most around the country, with Melbourne’s ongoing population growth and strong employment being the primary drivers.

Ms Conisbee said that technological change was increasingly influencing the performance of commercial property, citing industrial as being the “property type of the next decade” based on a shortage of suitable land, plus increased demand for space from online retailing, driverless cars, and the farming of produce, such as leafy greens and berries.  

She went on to say that she expected office values to experience further growth, driven in particular by co-working and the tech sector, and that retail would continue to evolve. 

Ms Conisbee said REA data suggested that there had been a recent steep decline in investor preference to purchase high-street strip shops, from 21 percent to 6.0 percent, instead looking at other assets classes.

She said changes in the retail sector were likely to include multi-level supermarkets and “big box retailers” moving to smaller store formats within major shopping centres, combined with a delivery-only buying experience.  

In response, Savills VIC State Director for CBD & Metropolitan Sales, Clinton Baxter, said that despite the changes occurring within the retail environment, retail investments were “as popular as ever”, with most sale opportunities being met with strong and competitive buyer interest from investors.

“Prices for retail investments throughout the market have sustained historic high levels throughout the past 12 months, and we have actually witnessed strong growth in the same period in locations experiencing high localised population growth, such as the CBD and Box Hill,” he said.

During Mr Oster’s address of the group, he said that he had observed the fortunes of the commercial property market to be closely tied to the unemployment rate – a decrease in unemployment indicating strong commercial property conditions to follow, and an increase resulting in a weakening throughout the market.

Assessing the state of the national office market, Ms Conisbee said solid rental growth was projected for Sydney and Melbourne, as vacancy remained low.

“Melbourne is the geographic outperformer due to its diversified economy and strong population growth,” she said.

Mr Baxter agreed with this sentiment, saying that office sales and leasing remained particularly strong in city-fringe hotspots that were attractive to the tech industry.

“We are witnessing a rapid migration of tech firms to Cremorne and Richmond, and the locality now has a critical mass that creates its own gravity, guaranteeing long-term success as a technological hub,” he said.

“Given the current financial constraints being imposed upon developers, we are expecting a shortage of supply into an already tight office market, leading to rising rental and capital values.”

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