Sydney and Melbourne rank high in the latest global Skyscraper Index, coming in at sixth and 15th respectively, according to Knight Frank’s Global Cities 2018 report.
The Skyscraper Index, which examines the rental performance of commercial buildings over 30 storeys, shows that upper-floor prime rents in Sydney’s skyscrapers grew by 3.4 per cent in the six months to the second quarter of 2017 with rents at $US1149 ($1470) per square metre per annum.
Melbourne’s skyscrapers came in at 15th position, with rental growth increasing by 4.6 per cent in the six months to the second quarter of 2017 with rents at $US608 per sqm per annum.
The standings for the two cities have been boosted by the strong office leasing market, thanks to limited new supply and the arrival of tenants in the technology and shared office space sectors. As the traditional CBD workers in banks and insurance decline, the new players are snapping up the space.
Businesses of Google, Twitter, Amazon, LinkedIn and WeWork, among others, have expanded their office leases in the Sydney and Melbourne capital cities. More are on their way, according to agents.
Cbus is adding to the Melbourne skyline with the Collins Arch project.
Knight Frank’s head of office leasing, Australia, David Howson said it was not surprising that Sydney and Melbourne both sat within the top 20 of the global index.
“Both Sydney and Melbourne are globally in-demand cities, with leading businesses looking to establish a foothold in the cities and population growth driving future activity and demand,” he said.
“In Sydney, net supply of office space will be extremely low over the next two years due to stock withdrawals amid limited new additions.
“While the latent demand in the Sydney CBD market remains strong, take-up is expected to be lower due to the lack of available space and rising rents.”
In Melbourne, as a result of above-average levels of positive net absorption, the overall vacancy rate fell from 7.1 to 6.5 per cent in the 12 months to July 2017. Prime vacancy fell to 6.1 per cent – the lowest level in four years.
According to Knight Frank’s director, research, Australia, Michelle Ciesielski, tenant demand in the Sydney CBD market continued to gain traction over the past six months, as evidenced by an overall net absorption reading of 22,216 square metres.
“Tenant take-up in the Sydney CBD over the past six months is around 7 per cent above the 10-year average. Solid leasing activity in the prime market contributed to this – a total of 102,243 square metres was absorbed over the past six months.
“Looking ahead, with a shortage of supply available, prime net effective rents in Melbourne are forecast to increase by 7.4 per cent by the end of 2019. As a result, prime incentive levels are forecast to trend down towards 24 per cent over the next 12 months.”
Mr Howson said this trend in Melbourne was primarily due to the growth of white-collar employment within the CBD.
“Over the next three years, white-collar employment within the Melbourne CBD is forecast to grow by 13,255 employees.”
Sydney is also becoming more competitive with the biggest and most globally connected cities and is now close on the heels of the “Big Seven” Established World Cities, according to a new report by JLL and The Business of Cities.
JLL Australia chief executive Stephen Conry said two clear messages to emerge from this analysis by JLL and The Business of Cities was that more cities were becoming competitive with the biggest and best cities; and that the leading cities had to future-proof in terms of their infrastructure and economic base.
“The fact that Greater Sydney is in the middle of a huge transformation on the infrastructure front is great news in this regard,” Mr Conry said.
“The CBD light rail, the first stage of the Sydney Metro and the WestConnex road system – all will begin to come online over the next five years and all will have significant impacts on the movement of people across the metropolis.”