Melbourne’s looming office crisis?

Melbourne’s city-shaping strategies have attracted 30,000 residents and created one of the world’s most liveable places. But does a potential shortfall in office space send warning signs to Australia’s planners and policy-makers?

This is a question on the mind of the Property Council’s Victorian President, Roger Teale (pictured).

Lendlease’s head of markets in Victoria says he is “passionate” about how his city will meet demand for commercial office space over the next decade or so.

“By 2030, we might need one million sqm more commercial space, as well as homes for 15,000 more people living in the city. How do we plan for that?

“One million sqm is around the same amount of office space as that built in the Docklands over the last 10 years.”

Victoria’s population is growing well above its 10-year average, with 127,0 people added in 2016, and 6.1 million now calling the state home, according to the Australian Bureau of Statistics.

Melbourne accommodated the bulk of this growth, and the ABS projects the city could double to 7.95 million by 2046 and top nine million by 2056.

Population growth in Victoria is driving white collar job creation – and these workers tend to congregate in office towers and technology parks close to the city.

“Our challenge is to ensure our planning processes can cope. I don’t think they are adequate to the task at the moment, and we need planning reform,” Teale says.

Melbourne is considered an international exemplar of how to revive a city’s failing fortunes. After decades enduring criticism as a city without soul, Melbourne now routinely tops the table as the world’s most liveable.

A large-scale and coordinated set of actions, including the highly-successful Postcode 3000 strategy, drove the conversion of lower-grade office stock and the construction of new apartments. More than 30,000 people now live in the CBD, and more pedestrians walk along Bourke Street each day than they do London’s Oxford Street.

Teale commends the policies for creating a vibrant 24-hour city with a flourishing night-time economy. “More people are in the city at night, but crime rates have come down because the streets are busier and safer,” he says.

But with only a finite amount of space in the CBD, residential and commercial development compete for space.

Policies like Postcode 3000 have been “phenomenally successful” but “we now have an issue of how we preserve commercial sites. We need to strike the right balance.”

The latest Office Market Report, published by the Property Council in August, found that Melbourne’s vacancy rate of 6.5 per cent is the second lowest in the country.

The 30,606 sqm of new supply was matched by 21,430 sqm of net absorption and 7,183 sqm of withdrawals in the six months to July 2017.

The Property Council currently has research underway to examine the drivers of the commercial property market and the policies necessary to provide a steady supply of high quality commercial office space.

Decentralising growth can ease the pressure on supply, and Teale points to the relocation of the Transport Accident Commission to Geelong as a good example of this strategy.

“But the simple fact is that 70 per cent of people moving to Victoria each year want to live in metropolitan Melbourne – and at least half of those want to live in the CBD.”

The planning scheme amendment C270, introduced in November 2016, introduces controls to the Hoddle grid in the CBD and Southbank. Among the amendments are mandatory plot ratios, building set-backs and height restrictions.

Teale says the Property Council argued that the C270 amendments, particularly as 18:1 plot ratios, favour residential development.

The Property Council’s commercial office taskforce is currently working with the Victorian Government on a long-term strategy to plan for growth, and Teale says “no other industry association has ownership of CBD interests like the Property Council”.

“We don’t have all the answers yet, but we do know that people moving to Melbourne want to work in the city. That’s where the jobs are.

“It’s a joint challenge for government and industry, and we need to work together to develop long-term, strategic solutions,” he concludes.