Beller Group's New Commercial Director Jeremy Gruzewski on 2018's commercial prospects
Real Estate Agency Beller recently appointed Jeremy Gruzewski as a Director, bringing with him 11 years of experience and knowledge as National Director Metro Market Auction and Investment Services at the highly respected Colliers International.
Now part of the Beller Commercial team, Gruzewski sees market opportunity for developers who are now looking at commercial office developments due to the cooling of the inner-city residential market. Strengthening rents are supporting these developments, says Gruzewski, underpinning the large number of applications and approved permits for office spaces currently in the market.
Urban.com.au asked Jeremy about his thoughts on the state of the commercial market and what's in store for the year ahead.
Urban.com.au: There is a significant pipeline of commercial developments either under construction or on the horizon in the CBD, Docklands etc. Beyond the core where do you expect to see a shift towards more commercial development?
Jeremy Gruzewski: There has been unprecedented supply of residential apartments in Melbourne’s core and suburbs over the last 10 years to the point that the commercial market has been left alone with minimal to no supply of office developments other than in the Docklands, which is a new market.
All other areas have seen the opposite with perfectly good office buildings replaced by residential towers.
These displaced tenants have had to find new homes and now that the CBD and city fringe are at record low vacancy rates (circa 2% for the fringe), rents are starting to rise considerably, making office developments viable.
Employers are setting the trend and demand for the location of office developments on the fringe of Melbourne with Cremorne and Richmond being two hot spots. These employers are chasing the same talent pool and this talent pool wants to work and live in the same area and not travel to Melbourne’s East (Clayton, Mulgrave) to get to work.
We have seen the most permit approvals and permit applications for office development in Melbourne’s prime City Fringe. This is in direct correlation with tenants demand and briefs for office space.
UM: We're seeing companies like SEEK looking to develop a head office just on the doorstep in Cremorne and further developments proposed along Church Street, Richmond. Similarly Hickory is pushing ahead with an office development on Clarke Street South Melbourne. Do you expect to see more of these types of commercial developments?
JG: Hickory’s development in Clarke Street is phenomenal and will set a new standard for office accommodation. It goes beyond carpet tiles and ceiling grids and becomes a place where you want to live! I believe many new developments will replicate this new look and approach.
There are approximately 25 city fringe sites that have been earmarked for office development, 90,500m2 has been approved and over 400,000 are proposed and awaiting approval. Melbourne City Fringe currently has just over 900,000m2 of office supply so if everything gets approved it is a significant amount of potential new supply.
UM: What do you think would make a commercial development more attractive in the current market than say a residential? What factors do developers need to consider?
JG: Without a doubt the major factor has been the growth in face rents; this coupled with a slowing of residential apartment sales has seen the desire increase for commercial sites.
Well-situated sites close to public transport, food and beverage outlets and entertainment venues providing a work and life balance will be the key. No surprises that Cremorne, Richmond and South Melbourne are hot spots.
UM: What impact do you think start-ups and co-working spaces are having on the Commercial market?
JG: Co-working spaces have certainly had an impact, but in a positive way. They have set a new benchmark in the quality of space and added “extra” offerings that an office needs to have. They have shown that tenants will pay extra for good quality designer spaces.
Generally start-ups are smaller lease deals in relation to tenancy size but the sum of all the little deals makes their presence significant. This allows these startups to grow, and as they grow they venture into the traditional office markets.
UM: Do you think there are areas with a lot of untapped potential for both new commercial developments but also adaptive re-use?
JG:The market continues to grow and develop and with Melbourne’s continued population growth and urban sprawl we will see new areas develop. Generally activity hubs will be the most desirable.
We believe we will see supply of new office development with smaller floor plates of circa 500 m2. This more compact size is in hot demand with the highest number of enquires.
Tenants want their own brand identity and have a whole floor rather than share, and is generally the size required from the start-ups coming out of the co-working spaces. As the world changes, so do its working habits.
Commercial real estate has a ‘push and pull’ force influencing demand with more people working from home and mobile work forces, therefore, office space is shrinking.
Tenants just want better quality that creates a high-end home environment.
UM: And lastly do you think 2018 will be the year for commercial to drive forward?
JG: Yes, 2018 will definitely see an increase in commercial developments and a decrease in residential developments as proven by applications and permit approvals.
2018 will see continued investment in commercial property; we have strong enquiry from multiple buying groups and across all price ranges. Volatility in the stock market and low bank interest rates make commercial property a feasible and proven investment option.
