Booming education sector propels growth in national office markets
Booming education sector propels growth in national office markets
16 August 2015
Melbourne, 17 August 2015 – Australia’s rising appeal with foreign students is underpinning a wave of growth in the education sector, with office markets around the country experiencing unprecedented levels of demand from providers looking to accommodate swelling operations.
A new CBRE Viewpoint shows Melbourne is witnessing the strongest trend, with close to 36,000sqm in education lease deals closed last year – a 44% increase from 2013.
CBRE Research Analyst Anne Flaherty said the strong demand from education providers in Melbourne was unlikely to waver, with continued momentum expected in the sector over the next few years.
“Education and training is currently Victoria’s largest export industry and shows no signs of slowing down,” Ms Flaherty said.
Over the past 18 months, the number of leases signed to education providers in the Melbourne CBD has more than doubled from 5% (20,000sqm) to around 10% (45,000sqm).
The report shows growth in the education space has been pivotal to the absorption of secondary space in Melbourne’s office market.
In 2014, vacancy in the secondary market reached its highest level in a decade, forcing landlords to increase incentives in a bid to entice tenants. This is reflected in annual absorption figures, which totalled only 15,000sqm for secondary space, compared with 52,000sqm for prime.
“In contrast to many industries, tenants in the education sector are most likely to lease secondary grade space and are therefore, playing an important role in the absorption of this space,” Ms Flaherty explained.
Over the past 18 months, 80% (35,500sqm) of space leased by education tenants was secondary grade space.
CBRE Research shows Australia is the third most popular international study destination, with Melbourne ranked Australia’s second most sought after study hub behind Sydney.
Despite this however, Melbourne has the highest proportion of international students, at more than 30%, Ms Flaherty explained.
“Part of Melbourne’s appeal when compared with Sydney is the lower cost of living,’” she said.
Ms Flaherty went on to say the education sector was emerging as one of the strongest growth pockets of the economy, accounting for more than 16,000 new jobs in Victoria alone over the past five years.
"University enrolments are rising on average 4% per year, with domestic university enrolments exceeding one million for the first time in 2014 and the number of international students commencing study was up 10% over the previous year,” Ms Flaherty said.
Ms Flaherty said there were a number of economic and legislative factors contributing to growth in the education sector.
“For international students looking to study abroad, the decline in the AUD has made Australia a more affordable option. Additionally, Victoria has two of Australia’s ‘Group of 8’ universities, the University of Melbourne and Monash, which are ranked in the top 100 globally,” Ms Flaherty explained.
Monash College, Central Queensland University (CQU) and Study Group have contributed significantly to the rise in office leasing activity in Melbourne, leasing more than 20,000sqm across the city in recent months
-CQU has signed a 12-year lease on 8,000sqm at 120 Spencer Street, a 22-level A-grade office building located opposite the Southern Cross Train Station.
-Monash College recently took up 6,570sqm at 271 Collins Street, committing to a 10 year term on the property.
-Red Hill Education has also secured space within the building, which is currently listed for sale with CBRE, signing a five-year lease on a 1,600sqm suite on the 8th level. CBRE Senior Negotiator, Office Services, Milly Stockdale negotiated the deal.
-Study Group committed to 6,700sqm in Church Lane earlier in the year, signing a 9.5 year lease on the Credit Suisse AG-owned property.
Melbourne Institute of Technology (MIT) has also been a heavyweight in the CBD office scene, purchasing the site of the former Argus Newspaper, a 14,000 square metre heritage listed building at 300 La Trobe Street.
CBRE Regional Director, Office Services, Andrew Tracey said momentum had continued unabated into 2015, with education providers chasing office opportunities across the city.
Australian Technical and Management College will back fill over 4,700 square metres vacated by MIT at 399 Lonsdale Street, while Haileybury College has purchased a 13,000 square metre office building at 383 King Street for $52 million through CBRE.
“Off the back of such a prominent and sustained growth period in the education sector, providers are aggressively seeking office space across Melbourne, particularly in the CBD and city fringe markets such as Carlton,” Mr Tracey said.
“In the first two months of the year alone, we have seen 4,146sqm in new enquiry, with a large portion of this interest in quality buildings that are willing and able to accommodate education providers.”
While the bulk of demand has stemmed from larger institutions, Mr Tracey said there was a strong presence from private learning bodies scattered through the CBD and further-afield in fringe and suburban locations.
“Quality education providers are no longer prepared to simply soak up space that commercial tenants no longer demand. Theirs is a highly competitive market, so to maintain an edge they must provide a quality environment for their students. Good B+ grade office buildings that are well located will be highly sought but are increasingly difficult to find,” Mr Tracey added.
Several pockets across Sydney have also witnessed a surge in leasing activity, with Parramatta, Blacktown and Bankstown in the west emerging as some of the city’s largest education hubs.
The University of Western Sydney (UWS) has become a prominent player in the Parramatta office market, leasing 26,500sqm at 1 Parramatta Square and 2,548sqm at 100 George Street. Other recent deals in the area include Raffels’ purchase of a 9,800sqm office property at 1-3 Fitzwilliam Street, Cornerstone’s leasing of a 834sqm space at 17-21 Macquarie Street and Careers Aust’s leasing of a 1,300sqm at 25 George Street.
CBRE Director, Office Services, Stephen Panagiotopoulos said there was a developing trend of both small and large education providers demanding space in Parramatta.
“As the central hub of Western Sydney, Parramatta is becoming increasingly attractive, with extensive public transport amenities servicing students in the region,” Mr Panagiotopoulos said.
“Large scale universities and private colleges are demanding upper B-grade to prime grade stock, whilst smaller private colleges are targeting lower C-grade assets. This demand has had an encouraging impact on the office market, absorbing unwanted C-grade stock and tightening the hard-to-move un-refurbished B-grade stock.”
He added: “More significantly, the UWS deal at 1PSQ has kicked off the Parramatta Square Development, which could see an additional three office towers for the precinct with the potential to add an additional 170,000sqm of commercial office space and a residential tower under the council’s plan to transform Parramatta as Australia’s next big city.”
North of the city, Australian Catholic University (ACU) is driving growth in the North Sydney office market, with the tertiary provider now one of the biggest occupiers in the area.
In further evidence of North Sydney’s expanding education landscape, International College of Colour and Design recently increased its operations by leasing an additional 600sqm of office space, translating to 100% growth in just 12 months.
Perth & Brisbane
Across the nation, a similar trend has been seen in Perth and Brisbane, with enquiries from education providers seeking office space lifting over the past year.
Local education and training provider Swan Institute Australia recently acquired commercial offices in East Perth for $6.55 million. Spanning 1,700sqm over five floors, the property will become Swan Institute Australia’s new Perth headquarters.
Perth is also set to receive its first new high school in close to 50 years, when St Georges College opens a new 2,707sqm facility at 50 William Street and 56 William Street in the CBD later this year.
Meanwhile in Brisbane, CBRE’s Mel Pikos and Michael Skarparis recently negotiated one of Upper Mount Gravatt’s largest lease deals in the past five years to registered training organisation, the Real Institute.
The Real Institute signed a five-year lease on a recently refurbished 910sqm tenancy at 643 Kessels Road.
“The education industry is undergoing a significant growth phase and the location of this asset proved to be the defining factor in the company’s decision,” Mr Skarparis said.
“Relocating from a 200sqm property to this significantly larger office is evidence of the thriving education sector,” Mr Pikos said.
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