Anneke Thompson, National Director | Research
The latest ABS Australian Demographics Statistics release supports the findings of the Colliers Office Demand Index for Q1 – that migration inflows to NSW and Victoria continue to increase, driving demand for commercial property in those markets. 68,368 offshore migrants moved to NSW in 2016, and 60,532 to Victoria, a small increase for both states on the previous year. These two states are bucking the trends seen in the other states, where offshore migration flows are decreasing.
These figures are exceptionally important in determining the long term demand potential for commercial property markets across the country. The best long term demand indicator for all classes of property is population growth. Over both the 10 years to 2025 and to 2035, Australia outperforms all our major competitor markets on this indicator alone. Australia’s population is forecast to grow by 1.2 per cent per annum to 2025 and a further 1.0 per cent per annum to 2035 . In the longer term, the major global competitor markets for offshore capital have forecast population growth rates well below this – averaging 0.5 per cent to 2025 and 0.2 per cent to 2035. 10 years ago, 58 per cent of all offshore migrants moved to either NSW or Victoria. That proportion has now increased to 74 per cent, the highest proportion over the past 10 years. By 2056, both Sydney and Melbourne are forecast to have surpassed a population of 8 million, up from 4.9 million and 4.6 million respectively in 2016.
[1 United Nations, Department of Economic and Social Affairs, World Population Prospects, the 2015 Revision]
What this means for our property markets is that demand is consolidating in our two global cities – Sydney and Melbourne. We are already seeing the impacts of this, with net effective rents in the Sydney CBD Core precinct growing by 10.5% in the year to June 2016, and by 6.3 per cent in the Melbourne CBD. Over the next five years, we expect net effective rents to grow by 3.6 per cent in the Sydney CBD and 5.6 per cent in Melbourne.
Infrastructure too, is catching up. In Sydney with the Light Rail project and in Melbourne the Metro Rail Project key amongst these.
Sydney in particular is consolidating its reputation as a global city. A new report from AT Kearney, a global business consulting firm, ranks 125 cities on the various criteria to determine top cities of the future. Sydney is ranked No 14 on the list, with Melbourne closely following at No 15. The outlook rank for Sydney is 12 and Melbourne 15 – meaning that Sydney has been identified as a city whose global importance is only going to accelerate.
The importance of these future growth trends in Sydney can’t be underestimated. Parramatta is expected to consolidate its standing as the second CBD in Sydney. Two of Australia’s biggest infrastructure projects – Westconnex and Badgerys Creek Airport, will continue to elevate Parramatta’s commercial market. Already almost 120,000sqm of new office supply is forecast to be built in Parramatta over the next 3 years – an increase of almost 18 per cent.
[2 AT Kearney, Global Cities 2016]