Cities facing imminent shortage of office development sites: Colliers
Australia is about to face a shortage of office development sites, according to a new report.
Colliers International’s Competitive Rivalry: Office Versus Residential in Metro Markets report suggests that increased appetite for residential development is now driving the metropolitan office markets.
In most metropolitan markets the demand is heating up, said John Marasco, Colliers International managing director of capital markets and investment services. He noted that developers are increasingly building residential properties on land previously earmarked for office developments.
“This is increasing competitive pressure on land values across metropolitan office markets, at the same time as demand from investors for office investments continues,” Marasco said.
“Zoned sites and existing commercial buildings are being converted to residential at an increasing rate, and in metropolitan markets this had led to minimal new development of office buildings. This increased competition has resulted in a tightening in yields for most eastern seaboard markets, following the similar trend witnessed in CBD office markets on the east coast.”
Nationally, new development supply of office space to the metropolitan market is recorded by Colliers to be at 124,996 square metres in 2014. In 2015, this figure is 100,963 square metres, with Victoria and Queensland driving the supply through 2014 – adding up to 37.6% and 33.6% respectively.
Marasco says that investors are increasingly demanding A Grade metropolitan office assets, particularly noting that institutional investors are expressing interest.
The graph below describes the type of buyers purchasing metro office stock:
“Institutional investors remain highly active in the metropolitan office markets, accounting for 69% of total sales volume during the year,” he said.
“Compared to last year, there is a significant shift towards domestic investment in metro markets, in particular domestic institutional investment. Last year, offshore investment in metro markets was driving the lion’s share of investment.”
Attractive yields and occasional development upsides are behind the demand. Marasco said that the hotspots of New South Wales’ Parramatta, Queensland’s Fortitude Valley and Victoria’s Chadstone are on investors’ radars.
