Sleeping giant disrupting market for office space
Education providers are major players in the take up of CBD office space take-up
MELBOURNE, 15 OCTOBER 2019 – Education providers are looking to Australian CBD offices to attract international students demanding improved safety, connectivity and enhanced amenities, according to a new report compiled by JLL Research.
“Education has become the ‘sleeping giant’ of office demand,” says Darren Krakowiak, JLL’s Director of Tenant Representation.
“Students are concerned with quality of life as much as their studies, and universities are responding,” Mr Krakowiak said. “Safety issues have focused attention on the need for students to be in highly connected environments. The continued blurring of lines between work, learning and recreational time will continue to compel education groups to adapt and find new ways to appeal to prospective students.”
The international student market is worth more than $30 billion a year to Australia.
In Victoria, strong state government investment in education has boosted student intakes by 5.8% per year from 2001 to 2017, exceeding the national average of 4.9% and increasing its share of national enrolments by 2.2 percentage points. Much of this growth is in the international student segment.
JLL’s report, Sleeping Giant – Education sector demand in the Melbourne CBD, notes that Melbourne was rated third globally in the 2019 QS Best Student Cities Ranking.
JLL’s Senior Director Strategic Research, Annabel McFarlane said, “Over the last five years, the education sector accounted for 10.1% of Melbourne CBD office space take-up, up from 2.2% in the previous five years.
“This is placing pressure on the Melbourne office market and vacancy levels are close to a 30-year low in the second quarter of 2019 at 3.8%.”
Victoria University is consolidating its city campuses into City West Precinct, a 32-storey vertical campus due for completion late in 2021.
Monash College is taking more than 40,000 sqm of space at 750 Collins Street, Docklands, with other educators taking backfill space in repurposed offices and leasing space in clustered buildings.
“Ongoing space constraints in the CBD may, however, force providers to consider alternative locations such as St Kilda Road and the inner North, around the Parkville National Employment and Innovation Cluster,” added Mr Krakowiak.
Mr Krakowiak said that education tenants are being sought after by landlords.
“The sector has the capacity to absorb significant amounts of space in a single transaction, with strong covenants, and a lower propensity to move out,” he said. However, he noted that increased movement of people outside business hours can put stress on building systems and, potentially, other tenants.
Non-university educators are also strong players in the sector, with enrolments trebling in the 10 years to 2017. These non-traditional institutions are also using the benefits of the CBD as a competitive advantage, and are key sources of demand for space in secondary office buildings.
Ms McFarlane said, “Melbourne’s status as a top-three global education destination creates more opportunities for investors looking to capitalise on further growth in this sector.
“The activity is not limited to traditionally CBD based education institutions, for example University of Melbourne and RMIT but also LaTrobe, Deakin and Monash. Five out of Victoria’s six largest universities by enrolments have taken space in the CBD since 2014. The influx of education tenants has added to downward pressure on CBD vacancy and has added weight to Melbourne’s centralisation story.”
Along with the increased demand for university premises, there has been huge growth in purpose-built student accommodation in the Melbourne CBD, particularly at the northern end close to the University of Melbourne and RMIT.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of more than 93,000 as of September 30, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.