The OECD offers an interesting perspective on the Australian education sector. The analysis shows that the proportion of young adults entering academic tertiary programmes increased by 40% between 2000 and 2012. A related indicator ‘young people expected to enter tertiary-type A (academic) programmes in their lifetime’ ranks Australia as 1st of 38 countries examined.

The growth in tertiary student numbers is having an impact on the demand for office space from the education sector. Across Australia, JLL has tracked 22 new commitments (>1000 sqm) by the education sector since 4Q13. Ten of these occurred within the Melbourne CBD or Melbourne’s decentralised office markets. One of the most active institutions – Monash University – leased space at 271 Collins Street (6,000 sqm) and 211 Wellington Road, Mulgrave (7,000 sqm).

The context of ‘why’ Melbourne may be seeing a larger proportion of education take up than other states requires a broader perspective.

Australian universities are well positioned to attract a growing share of international students. Australia is home to five of the ‘Times Higher Education top 100 universities (2014/15)’, while 14 Australian universities rank in the top 100 universities under 50 years old. Melbourne has two of the highest ranked universities: Monash University (83rd) and University of Melbourne (33rd and the highest ranked Australian university). Additionally the State government of Victoria, which is currently in election mode, has announced a plan to spend AUD5.2 billion over the next four years to deliver training for 850,000 Victorians, plus an additional 60,000 new apprenticeships.

Aside from the strong reputation of its education institutions, Australia is consistently ranked as a highly desirable place to live. The Economist Intelligence Unit’s ‘Liveability index’, which surveyed 140 cities, included four Australian cities in its top 10 most liveable places in the world. Melbourne was ranked first for the fourth successive year.

Education institutions tend to be price sensitive tenants who are willing to sacrifice high quality office fit-outs and prime location for lower rent. This constitutes a further strength for the Melbourne markets. A comparison of Melbourne CBD office rents with other Australian CBD office markets shows that although Melbourne is the second largest city in Australia, its office space is trading at a 16% discount to the national average gross effective rent.

Against this broad economic backdrop, we expect that the education sector will grow in importance for Melbourne’s office markets over the next few years.

We can expect:

• Population growth rates arising from natural increase and inter-state migration will increase demand for educational services;
• Increased public spending will support an increase in student numbers, while the ‘Melbourne brand’ will attract offshore students in increasing numbers;
• The affordability and availability of B Grade office space will attract education providers to CBD stock, and
• The education sector will play a more significant role across the metropolitan Melbourne office markets beyond the CBD.

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