With full time employment on the rise, prime office vacancies tightening and the private sector of Australia in recovery from the mining bust, there is a buzz of activity in office construction. In addition, increased participation of institutional investors against a low interest rate environment has seen a rise in capital available for investing in new office spaces.
CoreLogic construction data, powered by the acquisition of Cordell, indicates that there are currently 190 office spaces being constructed across Australia as of the end of April.
The office projects being constructed are worth a combined $7.1 billion worth of work. The project values range from a $100,000 refurbishment of a ground floor office in Adelaide, to the $1 billion mixed use Collins Arch in Melbourne with integrated offices.
The ‘top 5 council areas’, ranked by the number of office projects currently under construction, are listed below.
Unsurprisingly, four of the top 5 areas are councils hosting Australia’s largest CBDs, with Melbourne topping the list over Sydney and Brisbane. This is despite NSW having a larger number of workers in financial services, and being Australia’s largest economy at $476 billion - approximately 30% larger than the economy of Victoria.
It is worth noting that the Victorian economy is growing at a faster rate than NSW. Victorian State Final Demand expanded 4.7% in the year to December 2017, as opposed to 3% in NSW. A major contributor to growth in the Victorian economy has been private businesses investment. This includes non-dwelling building construction. The investment into Melbourne offices, as well as hotels (and even retail premises in the CBDs) signals that developers are anticipating further demand and consumption growth in the city.
The highest value developments in the Melbourne CBD include a $378 million commercial development at the Former Foundry site at the corner of Collins and Bourke Street, the $200 million Wesley Place Commercial Tower development at Lonsdale St, and a $173 commercial tower at the Victoria Harbour Precinct.
Interestingly, Yarra ranked above other major CBDs such as Perth, North Sydney and the ACT for office spaces under construction. It is estimated Perth currently has 6 office developments underway, while the ACT and North Sydney each have 4 currently in progress.
The East Melbourne region of Yarra is in close proximity to the Melbourne CBD, and is primed to benefit from a spill-over of demand from commercial tenants, having long established commercial areas in Cremorne, Abbotsford and Collingwood.
While such development would be expected around major city centres that attract talent, invite networking and have established services, 39 of the 190 office developments are occurring in regional Australia.
A map of postcodes in which office developments are occurring, with a construction value colour scale, is displayed below.
The regional office establishments are more closely related to facilitating necessary local services, such as council administration buildings or university buildings. In the instance of the $34 million Mann Street development in Gosford, NSW government is making a concerted effort to expand regionally, as a broader move to decentralise government department offices. Regional office developments currently under construction are worth a combined $317.2 million.