Sydney and Melbourne tipped for fastest prime office rental growth globally in 2019

Australia – Sydney and Melbourne are forecast for the fastest prime office rental growth globally during 2019, Knight Frank’s Global Outlook Report 2019 has found.

Melbourne and Sydney will see the largest rental growth in 2019, with rents expected to rise 10.1% and 8.6% respectively. Both 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% in Sydney and 13.9% in Melbourne over the past year.

The 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.

The Global Outlook Report 2019 found that while all cities are feeling the impact of slower economic growth and geo-political risks, some are benefiting from robust demand from tech firms for business space. This is coinciding with fewer major developments reaching completion, as the uncertain political environment has deterred some developers from building in recent years. This is squeezing supply and pushing up rents.

Knight Frank’s Partner, Head of Research & Consulting, Australia Ben Burston said, “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. 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.

“While we expect the pace to moderate from the 2018 level, the markets will still be among the world’s fastest growing, and this will see them continue to attract the attention of a broad range of crossborder and domestic investors,” said Mr Burston.

Knight Frank’s Partner, Head of Office Leasing, Australia David Howson said, “Leasing market conditions will be challenging for occupiers in 2019. Rents have risen substantially and businesses face relatively few options when seeking new premises. At the same time, the pressure to recruit talent and enter new markets is pushing them to address their property needs.

“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 Mr Howson.

Knight Frank’s Head of Occupier Services and Commercial Agency, William Beardmore-Gray, said, “Occupiers face two contradictory pressures in 2019. The geo-political threats, like Brexit and the US/China trade war, make it difficult for firms to plan the future. However, business pressures to expand market share, recruit talent and enter new markets, are pushing them to address their property needs.

“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 for a future headquarters building.”

Knight Frank’s Chief Economist, James Roberts, said, “We believe there is a compelling global case for continued rental growth across the global cities. Tight development pipelines over several years have created leasing supply crunches, particularly for offices and logistics property. This is coinciding with stronger occupier demand, particularly from the fast growing tech sector. We expect these improving expectations on rental growth to give more investors the confidence to make leveraged buys particularly given the supply problems found across global occupier markets.”

By: JAGONAL