Sydney vs Melbourne: Which is Preferable? 1

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Thursday, October 20th, 2016
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Earlier in October, football followers around Melbourne experienced jubilation as the Western Bulldogs upset the Sydney Swans in the AFL grand final.

Whilst their first premiership in more than 60 years was a magnificent achievement for the Bulldogs themselves, the result was also pleasing for the vast majority of Melbournians who had rallied behind the west Melbourne based team.

Football aside, Australia’s two biggest cities are also rivals in terms of their ability to drive investment forward and attract new residents and commercial tenants. Both have advantages. As well as being ranked by The Economist as the world’s most livable city, Melbourne has great culture and better affordability (both residential and commercial) whilst Sydney has more construction growth and better icons.

That raises interesting questions about which city wins out and what lessons the two cities can take from each other. This was a topic of discussion at a Melbourne focused growth summit put on by the Victorian division of the Property Council on October 6.

From the viewpoint of commercial tenants, Sydney contributed around 30.3 per cent of all gross domestic product throughout Australia in 2014/15 against 24 per cent in Melbourne, according to SG Economics and Planning. With New South Wales currently experiencing the strongest economic conditions anywhere in the country, Sydney is also growing fast. Accordingly, Sydney probably offers a slight advantage for a number of tenants in terms of proximity to their client base.

Offsetting that is cost, availability and choice. On these scores, Melbourne wins, according to Craig Newman, who runs the Charter Hall Prime Office Fund for commercial property fund manager Charter Hall. With current vacancy rates sitting at around 5.6 per cent (Property Council figures), space in Sydney is already tight.

Whilst around 200,000 square metres worth of space is under construction, Newman said another 300,000 to 350,000 is expected to come out due to withdrawals for residential conversion. A a further 11 buildings, or 60,000 square metres, will leave the market due to demolitions associated with Sydney Metro. Given this, choice and availability of space are more constrained in Sydney from a tenant’s perspective compared with Melbourne.

Melbourne also wins in terms of cost. As at June this year, data from Savills suggested that premium office space in Melbourne was available from between $346 and $490 per square metre (net effective rent), whilst A grade was available from between $324 and $432. In Sydney, the equivalent prices were between $509 and $813 and between $427 and $641 respectively.

Aside from that, Newman nominates five broader factors which impact tenant decisions in terms of where to base themselves. These include icons, accessibility, culture, sporting events and weather.

In terms of icons, accessibility and weather, Newman says Sydney has the advantage. Whilst the MCG is a wonderful venue, Newman says Melbourne cannot compete with icons such as the Sydney Opera House, Sydney Harbour Bridge and Bondi. Climate preferences differ amongst individuals, but Newman says Sydney’s milder weather typically wins out.

In terms of accessibility, Newman says both cities have good roads in and around the city, and both are working upon upgrading their metro lines in and around the CBD. Melbourne has good tram services and Sydney has its double decker bus services. It’s airport rail link, however, that provides the clincher for Sydney in this area.

On the flip side, Newman says a lively nightlife as well as a strong restaurant, arts and coffee scene gives Melbourne the edge in terms of culture. Ease of access to Melbourne Park, AAMI Park and the MCG give also gives Victoria’s capital the edge in terms of sport.

Whilst these are not core factors in determining tenant choices, they do impact the attractiveness of inner urban locations in these areas from a resident perspective and thus the ability of tenants to access the most diverse labour pool from a corporate sense.

Speaking primarily from a residential perspective and a Melbourne viewpoint, meanwhile, Christian Graham, general manager of Mirvac Apartments and Residential Developments said there are lessons which Melbourne can learn from Sydney which are both positive and negative.

On the positive side, Graham said the New South Wales government has marked Sydney as being ‘open for business’ by pushing forward with major projects and being clear about where new infrastructure will go. This, he said, has opened up new development fronts and underpinned confidence with which to push forward with them.

This is not to suggest that Melbourne is lagging behind in this area, Graham said, but rather to highlight the need to avoid complacency by which Sydney had previously been held back.

Other cities could also learn from Sydney in terms of its transformation from having the worst planning system in the country to becoming a city which has made bold changes, Graham said. This includes through projects which are above a minimum size being assessed by independent panels rather than councillors, changes to major project legislation to enable large scale projects to be facilitated, changes to approval processes to facilitate consents for large-scale precincts and the establishment of the Greater Sydney Commission, along with specific growth targets which are subsequently mandated back through council planning schemes.

Consistency with regard to design guidelines is also crucial. Whereas State Environment Planning Policy 65 (Sydney’s guidelines with regard to apartment design) is far from perfect, Graham says NSW has avoided chopping and changing rule, adding that this has underpinned a degree of predictability with regard to how the rules operate. This is particularly relevant to Melbourne as the city embarks upon implementing new apartment design guidelines, Graham said.

On the flip side, Graham says Melbourne’s ranking by The Economist as the world’s most liveable city along with Sydney’s absence from the top 10 demonstrates that money alone cannot make a city ‘brand’ and that such a brand cannot be created overnight.

Melbourne’s reputation, culture and liveability, he said, took decades to develop. Were money the critical driving force in this area, Graham says Sydney would be up there in the rankings. Alas, it is not and Melbourne should strive to both enjoy the rich atmosphere and vibe which the city benefits from and also to maintain this.

Another positive for Melbourne revolves around opportunities for growth in the middle suburbs where many people want to live. Whereas Melbourne has made inner areas ‘work too hard’ in terms of excessive reliance upon high-rise apartments for dwelling supply growth in recent years, he says the city has fewer land constraints compared with Sydney.

Affordability, meanwhile, is an area in which Melbourne has advantages in both the greenfield market (land prices) and in apartments. Graham says this factor needs to be maintained going forward through adequate volumes of land release.

Speaking in particular about opportunities for Melbourne, meanwhile, Newman says Sydney as a harbour city is ‘locked in’ in terms of space and that this is creating dilemmas in terms of affordable areas for residents and commercial tenants to go. Being a planned city, Melbourne has good opportunities for urban renewal in places such as E Gate and Arden, he noted.

In addition, Newman said, Melbourne has chances to develop a technology hub within the city and to learn from Sydney by building an airport link. Attempts by Sydney to create such a hub outside of the city centre have not been as successful as they could have been, and bringing those groups to Melbourne could help to move the city forward, Neumann said.

From a property sector perspective, which city do you feel is better and why? What can one learn from the other?

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  1. Damian

    In the 11 years I lived in Sydney from 1999 to 2010, all I saw was ancient planning controls, inept councils with political with corruption beyond belief, roads and infrastructure systems from the 1960's, over inflated land costs and enormous griddles to get even the smallest development approved. So any of the current infrastructure development is simply long overdue to get Sydney up to a "basic standard" and certainly not world leading in any way, shape or form. The M4 tunnel link to South Sydney has been spoken about for decades and only now things are starting to happen. It's chalk and cheese in Melbourne. They have roads and infrastructure at least 20 years ahead of Sydney, a larger port system to accommodate Melbourne's population growth, 24 hour international airport, bars toy surperior sports stadiums, sports events, cultural events, museums, arts centres etc. for Sydney to claim the Opera House, a bridge and a beach as "icons" is laughable. Nothing has changed about Sydney.