September 20, 2017

With six of the top 100 universities in the world, Melbourne’s growing education sector is keeping it on the hit list for investors as domestic and foreign students alike flock to the Victorian capital.

Not only does Melbourne have a high number of education providers, but many of those are well regarded internationally, says Nick Drake, Director of Office Leasing at JLL. “This has contributed to the high number of international students in Melbourne, typically from China and India, and in turn the increasing number of education providers to service this growing market.”

And it’s not showing signs of slowing down, with approximately 502,000 international students in Melbourne – a 17 percent increase on 2016. The 2016 Census also showed higher growth than expected for the city, with 135,000 new residents and 68,400 international migrants.

With so much competition for student places, the knock on effect for commercial real estate has been felt across the city as demand for space increases from a growing pool of occupiers. It comes as Melbourne’s office market enjoys consistent demand with the second quarter of the year yet again demonstrating above average net absorption, according to JLL Research. Vacancy declined to 7.01 percent in the quarter with minimal new stock scheduled in the next 12 months.

Drake says Melbourne’s advanced education sector is also contributing to investment demand in the city’s commercial property market.

“Traditionally, education tenants were seen as a more ‘risky’ occupier for building owners, due to the lack of certainty over government policies and funding typically amongst the vocational sector. But now, given the growth of the sector and increased stability of the Australian economy, many investors see education occupiers especially the likes of University of Melbourne and Monash University as some of the best covenants to lease to.”

The knock-on effects

Education – Australia’s third largest export – also plays a key role in shaping the livability of a city. Just recently, Melbourne was named the most liveable city in the world for the seventh year running by The Economist.

The education and training sectors were also one of the top sectors for tenant demand by industry in the first half of 2017, according to JLL Data, while demand remained strong from related industries such as finance and insurance services, IT, professional and administration and support services.

With ever-more choice of where to spend their tertiary education, ease of access and building quality have started to play an important role in student’s decision making. This has led to increasing centralisation and increased building quality selected by the education providers.

“We have seen education providers seeking space in A-Grade CBD assets,” Drake says. “These properties are often reserved for commercial occupiers, but the limited availability of space in the Melbourne CBD and the pull for education providers to be located centrally is enhancing this with providers prepared to pay higher rentals to attract the best students.”

Melbourne’s Deakin University recently took up approximately 5,000 square meters in a new tower at Collins Square while La Trobe University committed to an additional 3,000 square meters in 360 Collins Street.

Drake adds, “Whilst the city may lose some students upon completion of their studies, not contributing to the Melbourne’s workforce, in the short and medium term the influx of international students and education providers is helping to drive the population, jobs and attractiveness of the city, and we expect these positive impacts to continue.”

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Nick Drake

Director, Office Leasing - Victoria, JLL Australia

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