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Nationally, current supply pipelines based on what is under construction and being marketed suggests supply will fall by around 20% over 2018 and by around the same amount again in 2019, according to JLL.
JLL’s latest Apartment Market reports for 1Q18 highlights that Australia’s major apartment markets are at very different stages of the cycle, but all markets are dealing with slower investor demand and tighter development lending conditions.
These factors have resulted in a thinning out of supply pipelines in all markets and means inner city apartment supply will fall in 2018 and 2019 from the highs of 2017.
JLL data suggests that around 26,600 new apartments completed in 2017 across inner city areas monitored in Sydney, Melbourne, Brisbane, Perth and Adelaide.
Click here <a href="https://www.propertyobserver.com.au/images/2018/5/16/pipeline.jpg" target="_blank">to enlarge.</a>
 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/16/pipeline.jpg" alt="">
Current supply pipelines based on what is under construction and being marketed suggests supply will fall by around 20% over 2018 and by around the same amount again in 2019.
Leigh Warner, JLL’s head of residential research in Australia, says ultimately the shift in development focus is a good thing.
“There is no doubt that with slower investor demand it is now a very challenging environment for developers to meet pre-sales hurdles and progress the very large CBD and near-CBD projects that have typified this cycle," Warner said.
"Many of these projects have already been postponed to later cycles, abandoned, changed to alternative uses, or substantially redesigned to be a more manageable size in the current market.”
Nevertheless, development is not stopping and JLL’s reports highlights that the focus of developers in most markets has shifted from high-density to more medium-density projects, often in suburban infill locations and with high quality finishes to target the owner-occupier market.
“The decline in the inner city supply pipeline will be a much needed breather for most of our major markets and help them absorb the strong level of supply added over the past few years. But at the same time, strong population growth and the need to densify our cities, mean that we do need to keep building apartments or else supply will fall behind demand once more and price pressures will continue to plague our major cities.”
JLL’s 1Q18 reports continue to show large differences in where pricing and fundamentals are across the market. Sydney and Melbourne continue to both record low rental vacancy in spite of recent strong supply levels, but Sydney has shown more evidence of slowing apartment price and rental growth over recent months. 
“Sentiment has clearly softened in the Sydney market and the market appears to be stalling now. However, Melbourne keeps on chugging on and showing remarkable resilience to recent supply levels. There is some moderate pressure on re-sale values in and around the CBD where recent supply has been particularly strong, but overall Melbourne’s strong population growth appears to be still cushioning the market from wider downward pressure.”
The reports also highlight that the Brisbane’s market appears to be stabilising after the worst of the supply wave is over and prices start to flatten out after 12-18 months of decline. Perth prices continue to fall, but there is also increasing evidence that it has passed the worst. This is evident in a recent rise in inner city apartment approvals, particularly for luxury apartments aimed at the owner-occupier market, which shows developers are gaining more confidence to start preparing for the next cycle.
Adelaide and Canberra are slightly less progressed in the current cycle and prices are still growing solidly despite elevated development activity. Momentum has slowed slightly in both markets over recent months, but the short-term outlook remains solid.
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Inner city apartment supply past the peak: JLL

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Quarterly net absorption across CBD office markets has hit the highest level since Q4 2007, according to recent findings from JLL Research.
JLL Research's Q3 2018 statistics on national office markets showed positive net absorption of 151,200 square metre over the quarter and 258,600 square metres over the 12 months to September 2018.
The national CBD office market vacancy rate compressed 9.1% in Q3 2018 a reduction of 1.8 percentage points over the year to September 2018.
“Labour force surveys show that corporate Australia is increasing headcount which has translated into positive leasing enquiry and activity,” stated JLL Head of Research, Australia, Andrew Ballantyne. 
"While Melbourne continues to be the standout performer, the leasing market upturn is more diverse with above trend net absorption in Canberra, Adelaide, Brisbane and Perth.”
<img src="https://www.urban.com.au/images/2018/10/11/JLL%20Graph%201.JPG" alt="">
The Melbourne CBD recorded 79,900 square metres of net absorption in Q3 2018 and 187,800 square metres over the 12 months to September 2018.
The Melbourne CBD vacancy rate tightened from 4.6% in Q2 2018 to 4.0% in Q3 2018 – the lowest level since Q2 2008.
Melbourne CBD prime gross effective rents increased by 1.1% over Q3 2018 and by 8.7% over the 12 months to September 2018.
“The Melbourne CBD office leasing market juggernaut continues to roll on. Melbourne is one of the world’s strongest performing cities and we continue to see a diverse range of industry sectors expanding their occupational footprint in the Melbourne CBD," JLL Head of Office Leasing, Australia, Tim O’Connor said.
“The Melbourne result was even more impressive as it included the relocation of the Victorian WorkCover Authority to a new premise in Geelong.
“The Melbourne CBD development pipeline will deliver new product over the next two years with 2020 expected to be the largest year for completions since 1991. However, the strength of the demand-side of the equation has led to a downward revision in the vacancy rate. We project 2020 vacancy will be in the 6% territory – well below equilibrium of 7% to 9% for the Melbourne CBD."
<img src="https://www.urban.com.au/images/2018/10/11/JLL%20Graph%202.JPG" alt="">
JLL Research found that the Sydney CBD recorded 8,800 square metres of net absorption over the 12 months to September 2018 and vacancy was 4.7%. Low vacancy continues to exert upward pressure on Sydney CBD rents. Prime gross effective rents increased by 0.8% over the quarter and by 10.1% over the 12 months to September 2018.
“Co-working operators are really ramping up their presence in the Sydney CBD. Two more WeWork facilities opened in Q3 and we are speaking with a number ofpotential new co-working operators. One of the challenges for new entrants is the lack of contiguous space in the Sydney CBD,” O’Connor said. 
The Brisbane CBD recorded 15,400 square metres of net absorption in Q3 2018 and vacancy tightened to 13.9%. Over the past 12 months, net absorption in the Brisbane CBD has totaled 39,600 square metres – 29% above the 40-year average of 30,600 square metres.
“The Brisbane CBD leasing market recovery is starting to gather momentum with prime grade vacancy (8.2%) tightening to the lowest level since Q412. The next phase of the Brisbane recovery will see a reduction in leasing incentives and an improvement in prime effective rents,” Ballantyne said.
The Perth CBD recorded net absorption of 17,600 square metres in Q3 2018 and 34,000 square metres over the 12 months to September 2018. Vacancy remains elevated (22.0%), but the spread between prime (18.0%) and secondary (28.1%) grade vacancy remains wide.
The Adelaide CBD recorded positive net absorption of 14,700 square metres in Q3 2018 and 23,200 square metres over the 12 months to September 2018. The quarterly net absorption in Adelaide was the strongest since Q408. Vacancy tightened to 13.7% with prime grade vacancy moving back into single digit territory (8.3%) in Q3 2018.
Ballantyne said defence, resources and professional services are growth sectors of the Adelaide CBD office market. The expansion of the defence sector and competition for skilled labour has led to organisations shifting operations into the CBD. BAE Systems moved into the CBD from Edinburgh Parks in Q3.
Canberra recorded net absorption of 35,700 square metres in Q3 and vacancy tightened to 11.6%. Low vacancy in the prime grade sector (6.2%) has resulted in rental growth with prime gross effective rents increasing by 3.7% over the 12 months to September 2018.
Ballantyne concluded by noting Brisbane, Perth and Adelaide will be the office markets to watch closely in 2019. Leasing enquiry and activity is positive, prime grade vacancy has tightened in Brisbane and Adelaide and we expect owners will start winding back incentives to a level more associated with current vacancy rates.
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Net absorption across CBD office markets reach their highest levels since 2007: JLL

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JLL's recent ‘Will Melbourne’s city Fringe keep kicking goals’ report explores vacancy and rental scenarios for the market, post pandemic.
In recent years, Melbourne’s Fringe office market has recorded strong rental growth in prime and secondary assets, in some cases outperforming CBD markets nationally.
In 2020 the new supply to the Fringe markets is expected to be more than 9 times the 20-year-average. By the end of 2024, Melbourne’s Fringe office market is forecast to have a net increase in stock of close to 305,300sqm, taking the total market to 1.87million sqm, JLL research forecasts. 
While 1Q20 represents the peak of the net face rental growth cycle in the Fringe, the impact the health and economic crisis could have on the Fringe vacancy is still to be determined, particularly due to the variable and flexible component of the Fringe office supply pipeline.   However, as vacancy increases with the onset of new supply and downward pressure on demand, JLL predicts we will see effective rents in older and secondary stock recording more pronounced corrections.  
JLL Research is tracking 55 projects &gt;1,000sqm that could deliver an additional 272,700 sqm of office space to the market by 2024.However many of these are unlikely to proceed without pre-commit and therefore may be deferred or put on hold.
The projected supply, withdrawals and likely demand will all impact the Fringe office vacancy which is predicted to rise to 13.7 per cent by the end of 2021 and reach a second peak in 2024 at 14.3 per cent.
Several factors will impact the variance in predicted vacancy scenarios;  
<ul>
<li>Revised Scenario V shaped recovery assumes the supply pipeline is more substantially reduced or delayed and demand bounces back strongly in 2022. Vacancy peaks in 2023 are in the region of 12.8 per cent .</li>
</ul>
<ul>
<li>Revised Scenario longer term impact assumes a reduced or delayed supply pipeline but also continuing inactivity for the next four years, minimal withdrawal of assets for any type of development and weaker demand. Vacancy peaks in 2022 are at approximately 15.4 per cent.  </li>
</ul>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/6/3/3_JLL.jpg" alt="" width="752" height="480">
JLL’s senior research director, Victoria, Annabel McFarlane, said: “COVID-19 is expected to have a short to medium term impact on the Melbourne Fringe markets. After five years of very strong rental growth with prime net effective rents increasing by 9.2 per cent on average annually, we are projecting that net effective rents will contract by 9.1% from the peak in 1Q20 to trough in 4Q21. 
“As demand softens, developers may postpone or place projects without any level of pre-commitment on hold as softening rents and yields impact the long-term viability of these projects. Shorter build periods and smaller project sizes gives the Fringe market a degree nimbleness as potential speculative supply is postponed in response to reduced demand.   
“However, it is not all negative and we predict some sectors to expand post pandemic, which will particularly affect the Fringe market given the occupier range. The fringe market will have an important role to play in the post COVID environment as some businesses look to split workforces and increase flexibility for staff.”
JLL’s head of metro office leasing, Victoria, Josh Tebb added, “Sectors including Technology, Health Care and the Public Services sector which are predicted to expand already have strong footholds within the Fringe markets, and these precincts are well placed to absorb these rapidly growing sectors in the recovery. 
“We are only beginning to witness the impact of COVID-19 on the Victorian office market but in these early stages, we believe the cost savings and controlled building environments of smaller buildings in the immediate fringe may appeal to some CBD tenants seeking to separate departments and project teams for the short to medium term.”
Ms McFarlane concluded, “Longer term, Melbourne is well positioned from a macroeconomic stance, with liveability, relative affordability, historic population and jobs growth and a strong education sector to support the recovery from this health and economic crisis. Office markets will need to become more metropolitan to accommodate the changing and growing workforce.”
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Large Melbourne supply hits post COVID-19 

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Agent name: Sam Brewer<img src="/images/2014/05/19/brewer-profile.jpg" alt="" style="float: right;">
Position: National director - head of metropolitan sales and investments 
Company: JLL
Office location: NSW
How long have you been in the industry?
I have been in the property industry since 2002. I began my career at Chesterton International as an industrial sales and leasing agent, and moved on to CBRE running their South Sydney Industrial team for two years.
I then spent several years in development before joining JLL in early 2010, initially running the Mascot business as head of office, South Sydney. As of 2014, I now run the NSW metropolitan sales and investments business.
What’s happening in the area you specialise in?
It’s no secret that residential development sites are absolutely booming in Sydney at the moment.
Both local and offshore (largely Asian) developers in particular are seeking large-scale development sites between 100 and 1,000 apartments. This has resulted in price growth of over 20% since late 2013 for such sites. We’re also seeing demand levels similar to those not seen since 2007 for suburban investment stock such as service stations and freestanding office buildings.
Describe the most interesting property you have sold.
There is a lot of growth in South Sydney, with prices moving quickly. In November last year I advised a client on a residential development site in Zetland that their site should sell for around $30 million in an open market environment. During the campaign we received over 100 enquiries and 10 offers, with an eventual sale price of $47.5 million – showing that when marketed properly in a rising market, anything is possible.
What are the ingredients to being successful in your job? 
Having strong integrity is key to being successful in this role – you’ve only got one reputation. Your best clients are often your colleagues, so maintaining internal relationships is also really important.
What aspects of your role do you enjoy the most?
I love the varied characters we deal with in metropolitan sales. Many of the private investors and developers we deal with started their careers with very little and have built extreme wealth. There’s a lot to learn from them. 
Where would you invest a spare $750,000?  
If I was taking a conservative view of the market, I would probably invest in an art deco apartment in the eastern suburbs of Sydney. If I was taking an aggressive view of the market, I’d use it to put towards a residential development site within 20 kilometres of the Sydney CBD.
Which football team do you support?
I support the Brumbies.
What’s your favourite app or techno gadget?
My Android smartphone.
You can connect with Sam on <a href="https://www.propertyobserver.com.au/https://www.linkedin.com/pub/sam-brewer/37/246/594" target="_blank">LinkedIn</a>.
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In profile: JLL's national director - head of metropolitan sales and investments, Sam Brewer

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A Caltex service station in the north-western Sydney suburb of Kellyville has sold for $9.4 million.
JLL believes the price achieved represents a new record for the sale of a freestanding service station in NSW since March 2011. According to market sales tracked by JLL transactions have ranged between $6 million and $7 million.
JLL agent Dylan McEvoy said the record sale price equated to a yield of around 5%.
The 2,634 square metre property located at 662 Windsor Road is leased to Woolworths Limited under a new 12-year net lease with two five-year options.  
The property was sold on behalf of Pioneer House Pty Ltd at auction.
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Caltex service station in Kellyville sold for record $9.4 million

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A significant landholding in Sydney’s North Strathfield comprising 23 separate residential houses is being offered for sale.
Some $90 million has been suggested as the likely selling price through JLL.
Located at 1-5 &amp; 9-19 Brussels Street, 126-134 George Street, 2-4 &amp; 8-20 Mena Street, North Strathfield, NSW, the site measures approximately 13,760 square metres.
The property has potential for a larger residential development, subject to council approval on the current proposed zoning changes for the precinct.
The site is currently zoned R2 – Low Density Residential and will be sold conditionally on rezoning. 
The property has three street frontages to Brussels Street, George Street and to Mena Street, and is approximately 550 metres from North Strathfield train station.
“This is one of the first sites of this size that has been offered for sale in the Inner West precinct,” said JLL agent Michael Binskin.
Offers close November 23.
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$90 million expected for 23 adjoining Strathfield homes

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JLL has been appointed to negotiate the sale of Arana Hills Plaza on behalf of ISPT.
Arana Hills Plaza is a well-established food, service and convenience based sub-regional shopping centre securely anchored by long term leases to leading national retailers; Coles, Kmart and Aldi, in addition to 23 specialty tenants, 4 kiosks, 2 ATMs and a freestanding Shell Petrol Station, providing a total gross lettable area of 14,355 square metres.
According to JLL’s Head of Retail Investments Simon Rooney demand for convenience-based sub-regional assets such as Arana Hills has been building up due to a lack of investment opportunities throughout 2016.
“Sourcing retail assets within capital city metropolitan areas is challenging at present, particularly for sub-regional centres."
There have been only five sub-regional centres sold within the Brisbane metropolitan area in the last five years, highlighting the limited stock in this asset class.
The centre is on a 5.61 hectare site 10km north-west of the Brisbane CBD, in the established suburb of Arana Hills. 
Its Coles and Kmart leases include provisions that require a high contribution toward both statutory and variable outgoings, providing income protection to future increases in outgoings and together with potential income growth via future percentage rent. 
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Brisbane sub-regional shopping centre, Arana Hills comes to market

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An institutional investor has acquired a 100 percent interest in the recently redeveloped St. Collins Lane CBD Shopping Centre.
The sale was negotiated by JLL’s Simon Rooney on behalf of LaSalle Asia Opportunity Fund III.
Located in the heart of Melbourne along the renowned Collins Street, St. Collins Lane offers over 9,000 sqm of GLA across four floors (plus a mezzanine level) comprising over 60 stores.
When offered to the market for sale, prior to St. Collins Lane being open, it had strong pre-commitment from a number of leading international brands including Coach, TAG Heuer, Reiss, Maje, Sandro Paris, Zadig &amp; Voltaire and The Kooples.
A host of luxury Australian brands are also committed to the property, as well as popular restaurants including Burger Project and Los Vida – both a Melbourne first.
Debenhams recently announced they would be opening their first store in St. Collins Lane, further enhancing the strong tenancy mix.
St. Collins Lane sits below the Novotel Melbourne on Collins which sold for AUD 237 million to Frasers Hospitality Trust earlier in September, realising a total $484m for LaSalle.
<img src="/images/2016/11/15/IP004.20160512-AC0I6118.jpg" alt="">
JLL’s Head of Retail Investments – Australasia, Simon Rooney said the revitalisation of the CBD retail core has driven further strengthening of investor demand for these high quality assets and this was reflected in the competitive sale process for St. Collins Lane.
2016 already reflects a record year for CBD retail transactions with $1.6 billion recorded to date, eclipsing the $1.2 billion in 2015," he said.
Major CBD transactions – last 12 months
<table border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="top" width="212">
Property
</td>
<td valign="top" width="99">
Purchase price
</td>
<td valign="top" width="92">
Indicative yield
</td>
<td valign="top" width="80">
Sale date
</td>
</tr>
<tr>
<td width="212">
Carillon City, WA
</td>
<td width="99">
$140,000,000
</td>
<td width="92">
5.47%
</td>
<td width="80">
October 2016
</td>
</tr>
<tr>
<td width="212">
Myer Bourke Street Mall, VIC (33.3%)
</td>
<td width="99">
$151,300,000
</td>
<td width="92">
4.62%
</td>
<td width="80">
August 2016
</td>
</tr>
<tr>
<td width="212">
David Jones – 77 Market Street Sydney, NSW
</td>
<td width="99">
$360,000,000
</td>
<td width="92">
4.50%
</td>
<td width="80">
August 2016
</td>
</tr>
<tr>
<td width="212">
The Myer Centre Brisbane, QLD (25%)
</td>
<td width="99">
$192,100,000
</td>
<td width="92">
6.00%
</td>
<td width="80">
May 2016
</td>
</tr>
<tr>
<td width="212">
MidCity Centre, NSW (75%)
</td>
<td width="99">
$320,000,000
</td>
<td width="92">
4.77%
</td>
<td width="80">
May 2016
</td>
</tr>
<tr>
<td width="212">
World Square, NSW (50%)
</td>
<td width="99">
$285,000,000
</td>
<td width="92">
4.45%
</td>
<td width="80">
December 2015
</td>
</tr>
<tr>
<td width="212">
Rundle Place &amp; 80 Grenfell St, SA
</td>
<td width="99">
$400,000,000
</td>
<td width="92">
-
</td>
<td width="80">
December 2015
</td>
</tr>
</tbody></table>
“There is still very robust demand from investors who are seeking to acquire major CBD retail assets given their defensive nature and potential to generate solid income growth through increased population density, infrastructure improvements and employment growth.
Interest for St. Collins Lane was primarily led by offshore capital sources, with their lower cost of capital and strong preference for CBD retail assets. Although offshore investors have moved into other retail categories in recent years – primarily sub-regional retail – CBD assets remain the top preference for groups with a core strategy,” Mr Rooney said.
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Sale of redeveloped St Collins Lane Melbourne secured by JLL

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JLL's are dubbing their new Mascot business premises an Activity-Based Working office. The new office features non-assigned desks, discussion hubs, meeting rooms and ‘hush’ rooms designed for quiet working.
JLL has relocated from their previous offices at Sydney Airport Centre, 15 Bourke Road Mascot, to a new office within the Connect Corporate Centre at 191 O’Riordan Street, Mascot.
The Mascot fit out was completed by the firm’s Project &amp; Development Services division, which also completed the fit outs for JLL’s other WorkSmart offices across the country.  Michael Fenton, JLL’s NSW managing director said, the timing couldn't be better for the move, as JLL mark 20 years in South Sydney.
"Our success in the local market over the last two decades is a reflection of our trusted commitment to always achieving the best results for our clients," he said.
"We are equally committed to providing working environments that foster collaboration, innovation and cater for different working styles of our diverse employees."
WorkSmart was built in-house by JLL’s Corporate Solutions team and is designed to incorporates enhanced mobility and flexibility through multiple activity settings and work locations.
<img src="/images/2016/11/23/JLL%20Mascot_1.jpg" alt="">
It has plants to improve indoor air quality, low Volatile Organic Compounds finishes to all surfaces and Recycled Gyprock board. 
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JLL Mascot transitions to new activity-based working office 

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Three key concerns among shopping centre managers that continue to impact on their sentiment are competition, online retailing and fuel prices, according to a national JLL Retail Survey.
The main concerns being highlighted by centre managers as impacting their future turnover performance were ‘competition from other centres’ (with a net balance of -40), ‘online retailing’ (-29) and fuel prices (-23). 
Major fluctuations of fuel prices in recent months have created the issue of shopping centre managers.
JLL’s 16th Retail Centre Managers’ Survey was undertaken in February across 109 JLL-managed retail shopping centres nationally.  
<a href="https://www.propertyobserver.com.au/images/2017/03/28/Table%205.2.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/28/Table%205.2.jpg" alt="">
The most positive factors continue to be ‘changes to tenancy profile’, ‘growth expectations within the trade area’ and ‘planned refurbishment activity’.
Head of Property &amp; Asset Management – Australia, Richard Fennell said that the key strategy for many centre managers is to provide a strong food retailing mix. 
Overall tenant enquiry remains subdued, according to Fennell, however enquiry from fresh food and food catering tenants is buoyant. 
He said quality food offering including cafes gives customers a reason to stay longer in centres.
JLL retail figures are showing positive signs of vacancy improving for both sub-regional and neighbourhood centres. 
Neighbourhood centre vacancies improved from 3.7% in June 2016 to 2.6% in December, well below the long-term average of 4.6%  
Sub-regional vacancies improved from 3.5% to 3.0% but remains above the long-term average of 2.2%.
Fennel said that with strong competition from new centres impacting some centres across the JLL portfolio, the reduced vacancy rate reported across neighbourhood and sub-regional centres was a positive outcome.”
The JLL Survey Report identified speciality fashion as being a challenging sector, particularly in larger sub-regional centres where apparel has traditionally been a significant category. 
In part, the decline of this sector has been offset by a stronger focus on non-retail services such as medical centres, financial services and travel agencies.
Completions in 2017 in the major capital city markets are forecast at 416,000 square metres and this is expected to heighten competition in the retail sector.
<a href="https://www.propertyobserver.com.au/images/2017/03/28/Figure%202.jpg" target="_blank" style="font-size: 12.16px;">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/28/Figure%202.jpg" alt="">
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