Sydney and Melbourne rank top two globally for office rents growth: JLL
Sydney and Melbourne have again topped the global list for office rental performance, taking out the 2 top spots for annual prime office rental growth in the third quarter.
JLL’s latest Global Office Index for Q3 shows Sydney way out in front globally in number one spot for annual growth between Q3 2016 and Q3 2017. Sydney recorded 30.1% annual growth in prime rents. Melbourne recorded 17.3% year-on-year growth for the same period, pushing it to the second global spot.
US cities came in next, with San Francisco Peninsula in third at 12.9% annual rental growth, New Jersey at 12.2% and Portland in 5th spot at 10.4%.
Click here to enlarge.
JLL’s Head of Office Leasing – Australia, Tim O’Connor said, “Sydney has consistently featured in the Top 10 Global performers rankings for the past 5 years and Melbourne for the past 2 years.
“Two years ago, Sydney ranked number one, while Melbourne was ranked fifth. While the Sydney story has continued on the back of centralisation, stock withdrawals and growth from the technology sector in particular, Melbourne is now following hot on the heels.
“The sharp reduction in vacancy that precipitated the upward pressure in Sydney and Melbourne rents has been amplified by the lack of available new supply coming on line in the short term. The number of options for larger space users in existing stock now means demand will be expressed through additional pre-commitment activity,” said Mr O’Connor.
JLL Charts below showing global rental performance over the past 2 and 5 years for comparison of Sydney and Melbourne rankings two and five years ago:
Two year global rental performance. Click here to enlarge.
Five year global rental performance. Click here to enlarge.
JLL’s Q3 Global Office Index states that rental growth for prime offices across the 125 major markets covered by the JLL Global Office Index continued to pick up pace in Q3 2017, rising by 2.7% year-on-year.
This was significantly above the 10-year average growth of 1.6%.
Momentum is expected to continue with above-average increases in 2018, with a projected uplift of 3% for the full year 2017 and 2.3% globally next year.
JLL Head of Research – Australia, Andrew Ballantyne said, “Sydney and Melbourne effective rental growth was in double digit territory over 2016 and 2017. We expect that effective rental growth will ease back from this rate in 2018.
“Nevertheless, Sydney and Melbourne effective rental growth is projected to remain above 7% in 2018 with the potential to be even higher if the competition for space exerts further downward pressure on leasing incentives,” said Mr Ballantyne.
JLL’s Victorian Managing Director, David Bowden said, “Melbourne’s rental growth story has been strengthening since mid-2016.
“Limited new supply and strong office sector demand have combined to put significant upward pressure on face rents. Asset owners took a while to adjust their incentive expectations however these started coming down at the end of 2016.
“Melbourne’s CBD office market is benefiting from strong population growth which is fuelling business expansion in a diverse range of sectors. In 2016, the leasing market had the highest net absorption since 1978 and has remained strong in 2017, dominated by small business expansion which has accounted for over 63% of office sector demand.
“New rental benchmarks have been set this year for both existing assets and for the new stock due to come to the market over 2018 – 2020,” Bowden said.