Bates Smart's Julian Anderson discusses commercial development feasibility in Melbourne's central city

Following the introduction of new planning and density controls in Melbourne's Central City Zone last year, architeePlan Melbourne forecasts Melbourne's population to hit 10 million by 2051, carrying with it an additional 1.5 million jobs that need to be accommodated within an increasingly changing workforce. This has spurred the demand for both new commercial stock and the revitalisation of older commercial developments with Melbourne City Council’s data showing that 25 buildings are currently under construction within the Hoddle Grid.

Urban.com.au spoke to Bates Smart Director Julian Anderson, who shared his insights into the impacts of Victorian planning controls on the future of the city’s commercial opportunities.

Despite the best of intentions, says Anderson the planning controls that were introduced last year relating to the permissible size of developments in the CBD and Southbank are having a significant impact on Melbourne’s skyline. The controls were brought in to arrest construction of a wave of residential towers on the north and western edges of the city — towers that "display little regard for liveability for their inhabitants or the public." 

The Victorian Government’s intention is to “provide improved public amenity and deliver consistency and certainty that will ensure our city grows in a way that enhances all that make it the world’s most liveable city”.

The aspirations are laudable, says Anderson particularly in light of recent developments completed in the CBD which have been up to four times larger than the new controls would allow under a 18:1 Plot Ratio. In basic terms, the new provisions allow a maximum of 18 square metres of floor area to be developed for every square metre of site area. For example, a 2,000 sqm site can deliver a maximum of 36,000 sqm of floor area. More floor area will be permissable if additional public or strategic benefit is provided such as public open space, affordable housing or commercial office space.

One unintended outcome however, notes Anderson, has been the impact on the viability of commercial office towers, not with respect to height but rather when applying the setbacks required under the controls. This lead to Bates Smart undertaking the assessment of sites within the Hoddle Grid which are feasible for commercial development with a 1,500sqm NLA floorplate which based on their experience is the minimum required by both developers and tenants.

The office initially undertook an assessment of the impact of the new controls on residential development for their existing clients but realised it would be new commercial office developments which would be most impacted. As a comparison, the current crop of office developments which are under construction (save for one or two) were all permitted under the previous planning regime but wouldn't meet the setback requirements of the new controls.

Based on benchmarking their own office developments, Bates Smart determined that to achieve a 1,500sqm floorplate, a site of 3,000sqm would be required to achieve the necessary setbacks. Then a process of subtraction was undertaken, sites with development permits, landmark civic buildings, existing high-rise towers, strata titles were excluded and the potential for site consolidation was also considered. "The result?" says Anderson, fewer than six potential sites that could accommodate a viable commercial office tower.

One possible solution is to introduce two distinguishable sets of planning controls for residential and commercial development in the central city. The requirements for office developments with respect to privacy, natural light and adjacencies to other buildings are not as onerous as they are for residential buildings.

Anderson believes if nothing is done landowners will  eventually realise many sites can’t be developed, which will trigger the amalgamation of adjoining sites to maximise development potential. This however leads to protracted negotiation periods, slower development times and fewer opportunities.

Similarly, we may see more developments relying on the purchase of “air rights” — the underutilised space above a building. An adjacent owner can purchase those air rights to enable construction of part of their building into that space. Another potential corollary is the delivery of more slender residential towers because the controls also dictate that the taller a building, the further it must be set back from its boundaries.

Anderson cites New York, where amalgamated sites or those subject to development resulting from the purchase of air rights brought about a raft of super-slim towers. These are very costly because of additional structural requirements and the effects of wind on their slender forms.

As well, the proportion of structure to floor area cuts the net saleable area. This drives developers to build higher in an attempt to claw back profit forgone from lost floor space. Matching the high construction costs are the sky-high prices of $US4 million for a two-bedroom apartment on the 10th floor of a midtown apartment block or $US20 million for a two-bedroom apartment on the 50th floor of a midtown tower, for example.

Melbourne has its own example of this new tower form, with the Bates Smart'-designed Collins House site at 466 Collins Street. Approved under the previous planning scheme, the 57-storey apartment building is under construction and when complete, will be the world’s fourth slimmest tower.

Anderson says Melbourne’s future and title as a liveable city lies in our ability to plan for the careful expansion of the city and to find opportunities to relax our planning controls. This would allow for major urban regeneration projects to flourish and accommodate our future needs.

What they say

Our research and recent experience has established that developers and tenants are looking for floorplates sized no less than 1,500sqm NLA in CBD zones. There are several factors driving this area requirement.
Reasonably, developers require a level of pre-commitment from tenants prior to embarking on projects.

These tenants seeking floorplates that minimise distribution of staff across multiple floors. These floorplates can cater to over 100 people and offer open-plan floor space with good access to natural light and views to assure physical and mental wellbeing of the occupants.

The challenge with the planning controls is that rather than stimulating commercial development in the CBD, it stifles it. A floorplate of 1,500sqm under these controls requires a site area of around 3,000sqm. However, by the time you factor in the setbacks and other height controls, there are very few developable sites remaining.

In recent months, our team has conducted research establishing that there are fewer than six potential sites in the CBD that will support development over 80m in height, with floorplates not less than 1,500sqm in area. We concur with various industry sources on predictions that the commercial pipeline could be exhausted in the next decade.

- Julian Anderson, Director Bates Smart

It’s predicted that demand for commercial office space in the CBD will almost double over the next 30-35 years – this means Melbourne’s city will need an additional 4 million sqm of commercial space to match demand, largely driven by a booming population and forecast jobs growth.

This is a major challenge for Melbourne and we continue to work with the Victorian Government and the City of Melbourne to ensure that our planning processes not only reflect the needs of the market but can support the needs of our growing city into the future.

- Roger Teale, Property Council of Australia, Victorian President