Rents for skyscrapers soar

Rents for skyscraper offices in Australian cities are rising faster than those in any other global city, finds the latest global Skyscraper Index from Knight Frank.

The report examines the rental performance of commercial buildings with more than 30-storeys.

Melbourne and Sydney grew the fastest among the cities surveyed, with 11.0 per cent and 10.1 per cent respectively in the six months to the fourth quarter 2016.

Hong Kong’s skyscrapers continue to command the world’s highest rents by some margin, reaching US$3,257.93 per sqm per year. New York retains its second position, where skyscraper rents are currently $1,711.46 per sqm per year.

Sydney came in sixth, after Tokyo, San Francisco and London, at $1,047.78 per sqm per year.

Boston, Shanghai, Singapore and Chicago rounded out the top 10, while Melbourne ranked 15 with $547.74 per sqm per year.

David Howson, Knight Frank’s head of office leasing in Australia, says Sydney’s office vacancy, which currently sits at 6.2 per cent, could go as low as 3.5 per cent in the next two years.

New supply, largely driven by the Barangaroo developments, has been balanced by withdrawals.

Howson says 239,057 sqm of stock was withdrawn in 2016 for either refurbishment, conversion to residential or hotel use, or recycling for future office developments.

The Metro project will also trigger significant withdrawals of space.

“The next two years of supply is only modest, and the total stock of the CBD is expected to decline over this period.”

In Melbourne, the vacancy rate of 6.4 per cent is at a 10-year low. Howson says the stock growth of 1.3 per cent per annum is well under the long-term average of 3.6 per cent.

“The Victorian economy is currently the strongest in Australia, and is supported by high population growth into Melbourne of two percent, which is boosting the underlying demand for office space,” he says.

“With the vacancy rate expected to head towards four per cent in the next year, the upwards pressure on rents will remain.”

Knight Frank’s chief economist James Roberts says the strong performance for Melbourne and Sydney reflect local market factors.

“If we set those cities to one side, the general picture from the latest Skyscraper Index is flat growth, which reflects the nervousness in most office markets in the second half of last year over political risks, like Brexit and the US election.”

Roberts says the “tone of global economic news is improving” and he expects to see more cities reporting rental growth in tower buildings in the next skyscraper index.