Melbourne and Sydney are forecast for the fastest prime office rental growth in the world this year, according to Knight Frank’s Global Outlook Report 2019.
Hot on the heels of the Property Council’s latest Australian Office Market Report, which revealed decade-low vacancy rates in Melbourne and Sydney, Knight Frank has found Melbourne rents will rise by 10.1 per cent and Sydney closely behind on 8.6 per cent.
Melbourne and Sydney are expected to post the largest rental growth in 2019, with rents rising 10.1% and 8.6% respectively. Bengaluru (6.6%) and Delhi (6.5%), Boston (6.3%), Amsterdam (5.3%), Berlin (5.1%), Moscow (5.0%), Singapore (4.8%) and Dublin (4.0%) round out the top 10.
Both Sydney and Melbourne are experiencing tight office supply due to employment growth and relatively low levels of development completions in recent years, Knight Frank says.
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,” says Ben Burston, Knight Frank’s head of research and consulting in Australia.
“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 cross-border and domestic investors,” Burston adds.
David Howson, Knight Frank’s head of office leasing expects leasing market conditions to 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.”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 seventh and 21st respectively in the world’s most expensive office markets.