By Claire Stewart 29 August 2017

Australia’s capital cities are likely to grow faster than many other cities across the world in the next half century, according to data from the United Nations.

Meanwhile, Australian Bureau of Statistics (ABS) data says that employment growth in our capital cities is outstripping that of regional areas, and many businesses are moving closer to the CBD or to major transport hubs. 

The figures suggest demand for office space will continue to increase over the long term. 

The 2016 Census showed that 15 million people, or two-thirds of Australians, now live in capital cities. Our cities are becoming more diverse as they continue to grow. Over the past five years, growth across the capitals reached 10.5 per cent. 

While Sydney has long held claim to the largest population centre, Melbourne is poised to eventually overtake Sydney as Australia’s largest city, with population projections by the ABS predicting by 2061 Melbourne could be home to up to 9.1 million and Sydney up to 8.9 million people.

 
Melbourne is poised to eventually overtake Sydney as Australia’s largest city

Sydney, Melbourne duke it out at the top

That data, as well as United Nations figures on global population growth, rank Perth, Brisbane, Melbourne and Sydney as the cities with the highest population increase by 2050 across a sample of 41 global cities. 

Along with population growth, capital cities also account for nearly half of all new jobs created since 2007, according to Grattan Institute research. “Half of all jobs growth is now within a two-kilometre radius of the city centres in both Melbourne and Sydney,” John Daley, Grattan Institute Chief Executive, has said. 

For businesses with a turnover of more than $1 million, the trend in their space needs has done a U-turn: they are moving away from the suburbs and closer to the CBD. 

All this data goes some way to explaining why office space in our two largest cities is becoming harder to find. Vacancy rates in Sydney and Melbourne CBD were at 5.9 per cent and 6.5 per cent respectively in July 2017, according to the latest Property Council of Australia Office Market Report.

 
For businesses with a turnover of more than $1 million, the trend in their space needs has done a U-turn: they are moving away from the suburbs and closer to the CBD.

Demand will drive more construction

“Positive tenant demand for office space has been the big driver of office markets around the country over the last six months, and this will continue with limited new supply on the horizon,” says Property Council of Australia Chief Executive Ken Morrison. 

“In aggregate terms, Australia’s CBDs will receive half the historic levels of new supply over the next two and a half years.”

“Almost three quarters of the new CBD office supply over the next two and a half years is coming in Sydney and Melbourne, the cities which are best placed to handle it.”

However, the increasing demand for office space has led to an increase in the number of new office buildings planned for construction over the next five years.

In 2019 Melbourne will see 377,600sq m of new space come into the market compared to Sydney’s 184,600sq m of new space that year, says the Property Council.

The outlook for demand is positive given supportive economic conditions. Victoria added almost 98,000 jobs last year, almost double the long term average. NSW and Queensland added more than 40,000 jobs each, with Queensland recovering from a weak period last year.

If growth figures remain strong and construction stays flat in the short term, it’s difficult to imagine an alternative to the super-cycle for commercial property in Sydney and Melbourne over the next two years. In the longer term, it seems supply will need to rise to meet demand. Positive take up of space will help the Brisbane market recover from a vacancy rate of 15.7%.

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