Which two cities lead office space demand?
High demand for office space in the Sydney CBD and Canberra is leaving other capital cities looking sluggish, recent research shows.
The number of office tenants looking to relocate or expand in those cities is higher than the historical level, Colliers International reveals in its latest national CBD office report.
But Brisbane and Perth city centres had below average levels of tenant activity for the 12 months to the end of June.
Colliers’ research reveals information technology and telecommunication (IT&T) companies showed the biggest increase in demand for rental space, making up 18% of enquiries.
IT&T companies showed the biggest increase in demand for rental space.
The agency’s director of research, Nerida Conisbee, says IT&T office demand was up in all capitals, with Brisbane attracting twice as many enquiries from the sector as it did in the previous 12 months.
“This suggests that the recovery (in tenant enquiry) is not just being driven by business services but technology as well, a distinct change from previous years,” Conisbee says.
“Not surprisingly, the sector with the biggest decline has been resources. After peaking in 2011 with 6.7% of enquiry, it has now reduced to just 1.5%, with the biggest declines in Brisbane and Perth.
“Enquiry from finance and insurance remains fairly similar to previous years and we are yet to see a strong recovery from this sector.
“Year to date it has accounted for around 12.5% of enquiry, higher than last year but less than 2009 and 2011,” she said.
Business services continue to dominate demand, with a consistent 21% of the total.
Sydney has experienced the largest movement of tenants in the past year, with most of them shifting to the Barangaroo district. However, Colliers forecasts that it will be the only capital to record a drop in office vacancies to 8% in 2015 from 8.2%.
Read more: Office real estate: what is it?
Melbourne vacancies are tipped to jump from around 8.3% to just shy of 10%.
All other cities will continue to experience vacancy rates of between 13% and 14.5%.
The report identifies the increasing adoption by corporates of activity based working (ABW) models for staff as a major driver of tenant movement. Older, less flexible offices are not designed to optimise ABW, where workers are free to choose spaces that encourage collaboration or to retreat to more secluded areas.
Thus, large companies embracing ABW are increasingly seeking out the flexible floorplans of new office blocks.
Large companies embracing ABW are increasingly seeking out the flexible floorplans of new office blocks.
“With continual movement of firms to alternative ways of working, it is likely that a city such as Melbourne will be unable to sustain the one million square metres of total space that it increased by
over the past decade,” Conisbee says.
“In comparison, Sydney and Brisbane CBDs, which grew by just 500,000sqm each, are likely to see greater (occupancy) growth despite moves to ABW by many companies.”
Read more: 4 steps to help find your first business space
For the remainder of this year and next, CBD office construction is forecast to be well below 10-year average levels.
The sluggishness of the past two years will continue because more CBD sites are being redeveloped into residential or hotel accommodation rather than offices, fewer tenants in the market are making it difficult for developers to reach pre-commitment targets and a general limited appetite for speculative construction persists, the report says.
Local investor snaps up Carlton bar site
Local and overseas private investors and developers were among the six bidders for a property on an iconic restaurant strip in Melbourne which fetched $3.66 million recently.
A local investor bought the three-level building at 160-162 Lygon St, Carlton, after it was marketed by Teska Carson as having both investment and development potential.
The agency said more than 100 investors responded to the campaign.
Sold on a tight 4.55% yield, the 684sqm property on a 250sqm site includes a ground floor café and bar leased to BC’s Bar Centrale until 2016 on yearly rental of $166,400.
It also houses a function room and commercial kitchen on the first floor and a caretaker’s unit on the second floor.
Teska Carson sold another property in the traditionally tightly-held strip a few weeks ago. The buyer paid $1.87 million for 128-130 Lygon St on a 4.34% yield.
Development looking up in South Perth
South Perth’s Civic Triangle has been sold for $27.31 million to a venture led by West Australian apartment developer Finbar Group.
JLL negotiated the sale of the 7206sqm site on behalf of the City of South Perth.
The venture partners have undertaken to complete a proposed building on the land in four years.
A 30-storey, residential tower will be built to become Perth’s tallest building outside the CBD.
The development will include five levels of underground parking, retail tenancies, commercial offices, gymnasium, child care centre an a 2500sqm ground-floor supermarket.
The agency received 70 enquiries during a five-week international campaign and went on to conduct a private tender phase in which four developers were invited to bid.
