Sydney and Melbourne are forecast for the fastest prime office rental growth globally this year, outpacing metropolitan heavyweights such as Amsterdam and Berlin.
Fundamentals such as employment growth coupled with tight supply and relatively low levels of completions in recent years has bolstered rents in Australia's two largest capital cities.
In its latest global outlook report, Knight Frank says Melbourne and Sydney will see the largest office rental growth in 2019 with rents expected to rise 10.1 percent and 8.6 percent respectively
The forecast follows a trend of rapid rental growth in both cities, with Sydney up by 11.9 per cent and Melbourne up by 13.9 per cent for 2018.
On a global stage, Sydney and Melbourne rank seventh and 21st among the world’s most expensive office markets.
Knight Frank’s head of research Australia Ben Burston said a supply crunch in both city markets with dwindling availability, particularly in Melbourne.
“With a subdued pipeline of development completions yet again in 2019, and sustained demand-side momentum, there is a compelling case for further growth this year,” he said.
“While we expect the pace to moderate from the 2018 level, the markets will still be among the world’s fastest growing, and this will see them continue to attract the attention of a broad range of cross-border and domestic investors.”
Related: Office Vacancy Rates Hit Decade Lows
Annual Prime Office Rental Growth
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While the current rental climate is creating volatile competition for office renters, Knight Frank chief economist James Roberts anticipates the leasing supply challenges will give investors the confidence to make leveraged buys.
“Tight development pipelines over several years have created leasing supply crunches, particularly for offices and logistics property.
“This is coinciding with stronger occupier demand, particularly from the fast-growing tech sector.”
Knight Frank forecasts improving expectations on rental growth to give more investors the confidence to make leveraged buys particularly given the supply problems found across global occupier markets.
Global Cities Prime Office Rents (per sq ft)
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Unsurprisingly in Knight Frank's ranking of office markets globally, Sydney stands out as Australia's most expensive office market.
Melbourne and Brisbane ranked at 21st and 22nd in the world.
These costs flank behind Hong Kong, which Knight Frank predicts will hold its title as the world’s most expensive office market.