Melbourne Fringe Office Market
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THE EMERGING INNER EAST: MELBOURNE’S CREATIVE HEART AND ITS OFFICE MARKET TRANSFORMATION RESEARCH | FRINGE REPORT | SEPTEMBER 2019 Inner east suburbs, Melbourne. - 2 - KNIGHT FRANK RESEARCH OVERVIEW ‘Fringe’ : The outer, marginal or extreme part of an area, group, or sphere of activity. Oxford Dictionary This publication’s author: Characterised by non-traditional forms of Positioned conveniently between the CBD architecture – the relics of Melbourne’s and the affluent eastern suburbs, the inner “ industrial age – and inhabited by businesses east is close to many of Melbourne’s” most Finn Trembath that prefer a more casual code, the inner admired attractions and transport links and Associate Director, Victoria, fringe is the antithesis of ‘corporate’, plays host to some of the city’s most notable Knight Frank Australia providing tenants with unique spaces industrial architecture and café’s - all of which can be configured to mould a which makes it incredibly attractive to both business’s brand image. business and workers alike. Wrapping itself around the city’s CBD, some As evidence of this, more Millennials are Melbourne’s office market of Melbourne’s most popular fringe suburbs choosing to live in the inner east than any landscape is changing. include Carlton, Brunswick, Fitzroy and North other part of Melbourne, and the tiny enclave Melbourne to the north; Flemington, Kensington of Cremorne – often mistaken for the Underpinned by a knowledge based and Parkville to the west; Southbank, St Kilda larger suburb of Richmond – has in recent economy and fuelled by rapid Road and South Melbourne to the south; times seen a rise in commercial popularity population growth, a seismic shift in and Cremorne, Richmond, Abbotsford and unrivalled in recent Melbourne history. This demand for office space is seeing Collingwood to the east. explosion of business activity in Cremorne the city’s inner fringe become a has sent ripples across the inner east, with Of these, it is the inner east that is legitimate alternative to the CBD. sleeper suburb Abbotsford now showing spearheading this unprecedented change real signs of prosperity and growth. All of Melbourne’s inner fringes possess in office market demand. Representing these factors position the inner east at the a trendy urban edge and sense of almost half of all fringe office stock, vanguard of a new era for the Melbourne community that appeals to today’s spanning north along the Yarra River this office market. new generation of workers. creative belt benefits courtesy of its location. The nature of demand for Melbourne office space is in a state of flux, and with this we are seeing the emergence of bona fide new office precincts within the city’s fringe. Hamish Sutherland – Head of Office Leasing, Knight Frank VIC “MELBOURNE FRINGE REPORT - THE EMERGING INNER EAST - SEPTEMBER 2019 ”- 3 - MELBOURNE’S CHANGING OFFICE LANDSCAPE Now, the next wave of expansion is taking place in the eastern fringe. Now, the next wave of expansion is taking As these precincts grow their tenancy mix CLUSTERS OF BUSINESSES place in the eastern fringe. Taken as an changes, with larger corporate tenants “CREATING CRITICAL MASS IN aggregate, a broad range of businesses arriving, such as MYOB, Reece Group” and THE EASTERN FRINGES populate Melbourne’s inner east, however SEEK in Cremorne, Suncorp in Richmond Emblematic of a city experiencing significant on closer inspection suburbs such as and Aesop in Collingwood. And with this growth and change, many of Melbourne’s Cremorne, Abbotsford, Richmond and deepening of the business mix come a emerging office markets have started Collingwood are carving out their own number of benefits, be they in the form of to reach critical mass. Put simply, this is unique commercial identity. opportunities for collaboration, networking and learning, or access to a suitable when like-minded businesses gravitate to Cremorne has become a hot-spot for retail recruitment pool. particular areas creating industry clusters, and businesses providing information, and as these burgeoning pockets grow media and telecommunication services they achieve greater density, eventually (aka ‘tech’); Abbotsford has become prospering to become genuine precincts. home to a number of businesses in the For example, the area around South finance/insurance sector; Richmond is Melbourne and St Kilda Road has for synonymous with healthcare, professional the better part of the last 20 years been and information media/telecommunications recognised for its agglomeration of media, services; and much of Collingwood’s office marketing, and advertising commerce, while NLA is being occupied by businesses in the in the last decade Parkville has become transport, public administration, fashion and synonymous with Biotech. education sectors. FIGURE Tenancy Mix - Melbourne Inner East - 2019 2% Professional, Scientific & Technical Services 2% 3% 2% Information Media & Telecommunications Services 18% 4% Healthcare & Social Assistance Financial and Insurance Services 5% Manufacturing Retail 5% Electricity, Gas, Water & Waste Services Transport, Postal & Warehousing Construction 15% 5% Public Administration & Safety Education & Training Wholesale Trade 8% Rental Hiring & Real Estate Services Other Services 12% 8% 10% Source: Knight Frank Research - 4 - KNIGHT FRANK RESEARCH The spectacular rise in rents in Richmond FRINGE RENTS SKYROCKET and Cremorne can in part be explained by INCREASED As Melbourne’s office fringe market has the fact that much of the demand for office INVESTMENT ACTIVITY grown, so too its office rents have grown. space in these areas stems from tenants In line with rising rents, investment activity With the CBD office market experiencing that, through their reliance on a Millennial has also risen noticeably in Melbourne’s record growth and the fringe already and Gen Z workforce, care less about inner east. Between 2015 and 2016, starved of supply, rents in the fringe congested streets and lack of parking and commercial sales volumes across have skyrocketed, in particular within more about quality of amenity. Richmond, Cremorne, Collingwood and the popular inner east sub-markets of Abbotsford tripled (up from $62,200,000 Rents in the up and coming inner east Richmond and Cremorne. to $186,648,888), and sales volumes have suburbs of Collingwood and Abbotsford kept pace in 2017 and 2018, the clear In the past four years average prime net face sit below those recorded in Richmond and upswing in investment activity a sure sign rents in the broader fringe area have risen Cremorne, although, there is substantial investors are showing increased interest by 54%, excceding the pace of growth in potential for further growth in these markets in the inner east. While sales are down in the CBD (37%). Furthermore, rents within as demand increases and the quality of H1 2019 this has more to do with a lack of the inner east hot spots of Cremorne and supply continues to improve. Richmond have grown by over 80% in the supply than demand which is proving to last four years off the back of low vacancy be very high. levels – as at April 2019, Knight Frank Research recorded vacancy in Cremorne at 1.5% and Richmond at 5.4%. TABLE 1 FIGURE Tenancy Mix - Melbourne Inner East - 2019 AVERAGE PRIME NET FACE RENTS July 2015 ($) July 2019 ($) % Change 2% Richmond (inner east) 300-320 550-580 +81 Professional, Scientific & Technical Services 2% 3% Cremorne (inner east) 300-320 570-600 +88 2% Collingwood (inner east) 300-320 430-460 +44 Information Media & Telecommunications Services 18% 4% Abbotsford (inner east) 280-300 420-450 +50 Healthcare & Social Assistance South Melbourne (inner south) 350-400 500-550 +38 Financial and Insurance Services 5% North Melbourne (inner north/west) 300-350 360-410 +17 Manufacturing CBD 495 680 +37 Retail 5% Source: Knight Frank Research Electricity, Gas, Water & Waste Services FIGURE Transport, Postal & Warehousing Investment Volume - Melbourne Inner East - 2014 - H1 2019 Construction 15% 5% 250,000,000 Richmond Public Administration & Safety Cremorne 200,000,000 Education & Training Collingwood Abbotsford Wholesale Trade 8% 150,000,000 Rental Hiring & Real Estate Services 100,000,000 Other Services 12% 8% 50,000,000 10% 0 2014 2015 2016 2017 2018 H1 2019 Source: Knight Frank Research Source: RCA MELBOURNE FRINGE REPORT - THE EMERGING INNER EAST - SEPTEMBER 2019 - 5 - DRIVERS OF CHANGE FIGURE Population Forecasts - Major Cities - 2019-2035 8,000,000 7,000,000 6,000,000 Nowhere is Melbourne’s architecture as alluring as it is in the fringe. 5,000,000 4,000,000 to enable 39,000 more passengers to stunning Manhattan style loft apartments MELBOURNE’S 3,000,000 utilise Melbourne’s rail system during peak in Collingwood’s Oxford Street, to the rustic “INEXORABLE EXPANSION periods, in turn easing congestion on the charm of South Melbourne’s St Ali’s” café, Well documented of late, Melbourne’s broader network and shortening travel times. these warehouse, factory, industrial vault population is growing at an incredible and auction room conversions are clustered 2,000,000 Yet, it’s not all about economics. Indeed, a pace. The fastest growing city in Australia, in the inner fringe and typically boast classic whole host of other factors are contributing and indeed one of the fastest growing design traits such as large floorplans, high to the rise of the fringe, in particular within cities in the developed world, Melbourne’s ceilings, exposed brickwork, heavy wooden 1,000,000 the inner east. population recently reached the 5 million beams, polished floors, and on occasion mark and is tipped to surpass Sydney’s arched windows. by 2031, if not sooner. This accelerated 0 INDUSTRIAL CHARM While they can be found in all of Melbourne’s population growth has had a positive flow- 2019 2020 2021 2022 2023 Melburnians2024 2025 love 2026their real2027 estate2028 and 2029 2030inner fringe2031 suburbs,2032 many2033 of the2034 most2035 on effect on employment in Melbourne, their art, almost as much as their coffee notable industrial space conversions are with Oxford Economics reporting that Melbourne Sydney and their footy.Brisbane It shouldn’t comePerth as Adelaidelocated in the innerHobart east.