Tony Crabb, National Director of Research at Cushman and Wakefield, provides an overview of the Melbourne property market as the year draws to a close. This article is based on his recent seminar for Legalwise, Retail and Commercial Leasing Market Snapshot.
It is not possible to discuss the property market without discussing the economic environment in which it resides.
The current interest rate environment is relatively benign with no change in official interest rates for over two years. This is largely reflected in other countries around the globe with the exception of the United States where official interest rates have been rising and are expected to continue rising. Nevertheless, the economies of Australia’s major trading partners (incl China and Japan) are expanding.
Australia, like many first world countries, has an ageing population. To combat the economic impact of this, Australia has increased its intake of migrants. This policy has been in place since 2002 and the Australian population is now over 25 million. It is expected to grow to over 35 million people in time. This is expected to continue to put pressure on property prices as the intensity of land use continues to grow. This is expected to be particularly so on the Eastern Seaboard of Australia and in Brisbane, Sydney and Melbourne in particular.
Other economic indicators such as GDP, CPI, and unemployment are within ranges demonstrating an economy which is doing well. This leads us to believe that interest rate settings in Australia will be relatively unchanged for some time to come.
Within this economic environment, the commercial property market in Melbourne is performing strongly on a number of fronts. Vacancy rates in commercial office markets in Melbourne are regarded as low with sub 5% vacancy rates recorded in most markets. This has seen an increase in rents and an increase in the construction of new office space in most markets.
The increase in rents has also been accompanied with an increase in outgoings associated with higher utility prices and higher government taxes. Incentives in the form a contribution from the landlord towards the tenants capital works currently sit between 25% and 30% of the face rent. This is expected to remain a feature of the office markets for some time to come.
Another feature of the market is the trend of occupiers moving to the inner city locations where amenity – transport, food, entertainment, leisure – are attracting talented people. This pool of talented people are driving locational considerations for innovative companies. This is not just a trend in Melbourne but can be seen in cities right around the world.
As for retail markets, the ongoing disruption in the sale of goods continues to have a markedly negative impact on retail markets – particularly in shopping centres. Street retailing is more adaptable and has seen a significant increase in retailers of services and food and beverage retailing.
Nevertheless, the property market remains challenging for both retail landlords and tenants. Locational considerations – demographics, population growth, employment – have taken on greater importance in the consideration of landlords and tenants.
Tony Crabb is National Director of Research at Cushman and Wakefield working in the Melbourne office with the office, retail and industrial teams. Tony has worked in a research capacity for several organisations over the past 23 years. Tony is an advisor to the Reserve Bank of Australia where he is part of their business liaison unit. Tony is also an advisor to the Federal Department of Treasury. Tony is Chair of the Advisory Board of the Property and Real Estate Faculty at Deakin University.
Tony worked at ISPT where he was responsible for a $100 million listed property portfolio and investment research. Tony also worked as part of the senior management team on the strategic direction of ISPT’s $6 billion portfolio. Prior to moving into the property industry Tony spent ten years in equities funds management at Colonial, Institutional Stockbroking at Barclays and as an equities analyst. Tony has a Bachelor of Arts degree, a Diploma of Financial Services, is a member of the Faculty of Australian Writers, is a graduate of Rogen, has qualifications in equities, futures, options and foreign exchange trading and is a published author. Tony is the author of four books including a bestseller. Tony also gave a TED talk at TEDx Queenstown in April 2016 on Climate Change and Property. Contact Tony at Tony.Crabb@cushwake.com or connect via LinkedIn