Education sector leads take-up in Melbourne’s CBD

October 15, 2019 / By  

JLL ’s upcoming report Sleeping Giant – Education sector demand in the Melbourne CBD, highlights that education groups are accounting for an accelerating volume of take-up in traditional office space in Melbourne’s CBD. Over the last five years, education and training groups have accounted for 8.8% of gross take-up, substantially up from the previous five years where it averaged 5.4%.

Take-up has been fueled by rapid expansion of tertiary education, with enrolment growing by 5.7% per annum over 2012 to 2017 in Victoria – substantially exceeding the national average (4.1% per annum). This growth has forced education groups to rethink their growth strategies, and a trend of occupying traditional office space has emerged in the CBD market.

This trend has had a material impact in the Melbourne CBD market, as the sector has accounted for 15.4% (96,400 sqm) of net absorption over five years to 2018 through a period of sustained above average demand results. For context, education is outperforming two of Melbourne’s most talked about expansion sectors – flexible space and government, which accounted for 11.5% and 7.5% of net absorption through the same period. The activity is not only contained to institutions which have traditionally been CBD based, as five out of Victoria’s six largest universities by enrolment have taken space in the CBD since 2014. These include University of Melbourne and RMIT but also LaTrobe, Deakin and Monash Universities.

Figure 1: Melbourne CBD Net Absorption by Sector (2014-2018)

Source: JLL Research, 3Q19

So what does this mean for landlords and tenants?

From a landlord’s perspective, the opportunity to interact with a sector which has less reliance on the performance of the broader economy may allow income diversification, and given the sector’s high daily turnover, which doesn’t require expensive, high-quality space, may also allow owners to reposition older assets without the scale of capital works which otherwise would be required. However, some occupiers may not find being co-tenants with education groups aggregable to their corporate identity, increasing potential vacancy risk, and the extended hours of some of the education groups may increase strain on services and infrastructure.

With Melbourne’s office supply cycle continuing to accelerate, and prevailing high levels of pre-commitment in these buildings, there is likely to be an increase in secondary grade backfill space, which will likely provide ample opportunities for education groups to grow. From a co-tenant perspective, the chance to collaborate with the education sector with market-aligned courses or research partnerships may have a material benefit to businesses.

With the workforce becoming increasing liquid, and collaboration between the education and private sector increasingly sought out by both parties, it is likely that expansion of education groups into traditional office space in Melbourne will continue.

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