Rents up, incentives fall as land tax adds to space shortage

Melbourne CBD’s education sector continues to grow with the total amount of space leased in 2016 up over 200 percent on the previous year, according to a Savills Research survey, while recent hikes in land taxes has exacerbated stock level shortages and put increasing upward pressure on rents.

According to Education Sector specialist, Savills Director Mathew Kent, 2017 is likely to deliver as much or more education leasing with Savills currently dealing with more than 15 leasing requirements for in excess of 60,000 square metres. Some of the educators in the market include Monash University (40,000sq m), Think Education (2000sq m), Baxter (3000sq m), and RMIT (10,000sq m).

The total 39,840 square metres leased (deals over 500sq m) in 2016 included 14,222 square metres of prime space as institutions, including the top universities, were forced, in some cases, to take higher grade accommodation in a market limited by the availability of education specific space.

Mr Kent said withdrawal of secondary buildings for residential conversion, a lack of 9B accredited buildings, fit-out costs and competitors in the same building, were all issues which worked to limit the amount of space available to educators.

“For these reasons, the availability of suitable accommodation to meet the demand from education users in Melbourne is now at levels where landlords have been able to demand higher rental and more attractive terms for suitable accommodation,” Mr Kent said.

He said the increasing demand for limited space had seen rents rise from a range of $300sq m to $350sq m, to $550sq m plus over the last five years with a corresponding fall in incentives.

Mr Kent said the significant hike in land tax had also had been important in reducing available space.

“The doubling of land tax in low rise buildings may render the current use of a building, in terms of its tenancy profile and rental returns, unviable for some landlords and that has forced them, in some cases, to sell to residential developers,” Mr Kent said.

View select Central Melbourne education leases to December 2016.

In the most recent deals, Melbourne University has taken 6500sq m at 333 Exhibition St, Cambridge (7200sq m at 108 Lonsdale Street), and Charles Sturt University (3000sq m at 601 Bourke Street).

Survey author, Savills Associate Director Research & Consultancy, Monica Mondkar, said the education sector accounted for nearly 21 percent of the 191,484 square metres of office space leased by the Government & Community sector in 2016.

Ms Mondkar said the latest Department of Education figures revealed there were 554,179 full-fee paying international students in Australia on a student visa in 2016 representing a 10.9 percent increase on 2015 with new enrolments in Victoria up by 12 percent. The average annual enrolments growth rate has been 6.5 percent per year over the last ten years.

She said the Victorian Governments’ $31.9 million investment over four years in the international education sector announced in the 2016/2017 budget would likely underpin further rises in student numbers.

“Student numbers have been increasing year on year and, as Australia’s third biggest export at circa $20 billion, there is little doubt the Melbourne CBD education market will continue to grow. That is reflected in student choice with Melbourne’s international student population at more than 30,000 (according to Melbourne City Council),” Ms Mondkar said.

According to the QS Best Student Cities 2016 index – a ranking of the world’s leading urban destinations for international students by university ranking, affordability, student mix, desirability, and employer activity – Melbourne ranked second behind Paris with Tokyo third followed by Sydney in fourth place.

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