Office Market

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GUEST OBSERVER
Imagine a world where nothing is wasted and resources are endlessly re-purposed.
From bamboo coffee cups to recycled paint, more companies are championing the idea of a circular economy in which discarded raw materials and products are repeatedly reused, producing no waste or pollution.
According to the United Nations, by 2050 we could need three times more resources than we currently use, due to population growth and unabated consumerism. Specifically, the US National Intelligence Council has stated that globally we will need 35 percent more food, 40 percent more water and 50 percent more energy by 2030 alone.
“In short, the ‘take, make, dispose’ model of production, also known as a linear economy, is forcing the planet into a state of disrepair,” says Sophie Walker, Head of UK Sustainability, JLL. “We inherently live beyond our means and as a result, have seen pressures on resources mount and the potential for irreversible environmental changes grow.”
Taking a fresh approach
In recent times the concept of a circular approach has gathered momentum as an attractive and viable way of generating economic growth and prosperity for people and planet. “The shift to the regenerative circular concept we are seeing is taking place because world governments and businesses have realized that increasing global competition has made access to resources, at affordable prices, an increasingly challenging proposition,” says Walker. “They have also realized that the environmental risks are too severe to continue down the ‘linear’ path.”
And the potential benefits of applying circular principles to domestic economies and businesses are mammoth. The European Commission states that it could bring an estimated net saving of £523 billion to European businesses. In London, net benefits of a least £7 billion per annum along with 12,000 new jobs could be obtained by 2036 by applying circular activities across a variety of sectors according to The London Waste and Recycling Board.
Big companies such as Apple, Unilever, Renault and Google are already taken action to embrace circular solutions. In the fashion world, H&amp;M aims to become 100 percent circular, helped by its in-store garment-collection program and polyester fashion line made from reprocessed PET bottles.Since adopting a circular mindset, professional services firm PwC has saved almost £25 million by cutting paper and energy consumption through measures such as using cooking fat from its canteens and other kitchens to fuel its offices and remanufacturing office furniture where possible. Its cut-throat examination of numerous waste streams helped it achieve zero-waste-to-landfill status in 2012.
The real estate impact
Can the same circular principles work for buildings? Walker thinks so: “In my opinion the answer is yes. The UK building sector utilises over 400 million tonnes of material a year and generates a third of all our waste which comes at great cost, not only to the planet but also to our pockets. But it doesn’t have to be this way. Durable, re-usable components that can be easily put together, taken apart and accessed for repair or replacement can make all the difference. This allows us to adapt to society’s ever-changing needs by extending the life and value of our buildings.”
She points to modular construction, where homes are built in a factory environment using state of the art methods and materials, as an antidote for reducing waste and improving speed and affordability of new builds in the UK housing sector. For example, Legal &amp; General has just built its first modular housing prototype outside its Selby factory in Yorkshire.
Elsewhere, companies are turning waste into building materials. Lendlease is a supporter of Cross Laminated Timber (CLT), a material made from wood chips, normally considered scrap. CLT has a low ecological footprint and is faster and less labour-intensive to construct than conventional materials so much so, that the first 10-storey apartment building made with CLT took five skilled workers just 10 weeks to build. In what it calls “the latest example of high-performance workplaces, setting new benchmarks in environmentally sustainable building practices,” Lendlease is using CLT to erect the tallest and largest engineered timber office building by gross floor area in the world in Brisbane, Australia.
Why the future is circular
“Circular thinking really is gaining traction in the property sector,” Walker explains. “There are firms out there building entirely with circular economy principles.” The aptly named Circular Building was one of the first buildings in the UK built to satisfy these values, in which all parts were intended to be used to their full potential and to the duration of their life cycle.
“Another example is the Park 20|20 office development in Amsterdam which embraces a circular-economy approach by creating closed cycles for materials, energy, waste, and water, with everything having the potential to be composted or recycled back into industry,” she adds.
As circular thinking catches on, the need to move towards a new model is no longer in doubt nor are the potential economic opportunities. “Whether it’s property, retail or consumer goods, businesses are realising that big cost savings can be made from being socially and environmentally responsible and efficient,” says Walker.
To recycle the phrase Mark Farmer used in his assessment of the British construction sector: “the choice is simple, modernize or die.”
This article by Emma Hollingshead appeared in <a href="https://www.jllrealviews.com" target="_blank">JLL Real Views</a>
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How companies are reaping the benefits of circular thinking

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GUEST OBSERVER
The CBD office markets of Australia are in the midst of an unusual dynamic.
Sydney and Melbourne are in full rental growth and vacancy decline mode, while the other CBDs have low or negative rental growth, and vacancy rates in the double digits.
This is the first time since records began that the office markets have diverged to such an extent, and is reflective of the wider demographic and trends being felt in each state. That is, strong migration growth and employment growth in Sydney and Melbourne, and slowing population growth in the other states. 
Sydney 
The Sydney CBD office market is transitioning and opportunistic landlords have aggressively increased rents and reduced incentives as available office space diminishes. Almost 150,000 sqm of space will be withdrawn from the market by the end of 2017, as a result of the Sydney Metro project, as well as residential conversions. Over the short term tenant demand will outweigh net supply, maintaining downward pressure on vacancy rates until 2019. 
<img src="/images/2016/08/22/Colliersofficemarket.jpg" alt="">
Adelaide 
Despite the weakness in the Adelaide leasing market, there are signs that there is a pick-up in demand over the next 12 months. Enquiry has begun to improve and we are heading into a period of several large lease expiries which may be the catalyst for tenants to move. Access Economics are also forecasting an improvement in white collar employment during the first half of 2017. Most of which is likely to be through growth in small to medium enterprise. 
Perth 
The rise in vacancy in the Perth CBD – from 16.6 per cent in June 2015 to 21.8 per cent in June 2016 – combined with soft demand, continued to put pressure on landlords to reduce rents and offer higher incentives. Despite these efforts by landlords, net absorption remains subdued. This is a reflection of depressed business confidence and white collar labour market conditions. However, greater affordability has underpinned growth in demand from CBD and suburban tenants aspiring to migrate to a CBD address. This is expected to have a positive impact on net absorption going forward. 
Canberra 
Investor appetite in the Canberra CBD has improved, with a greater mix of investors generated by a high proportion of new entrants to the market. Recent lease deals indicate a slight shift of bargaining power toward landlords as tenant choice has decreased in some areas and sub markets. An increase in leasing activity and net absorption has placed downward pressure on vacancy and we expect vacancy levels to fall from 13.0 per cent currently to 11.0 per cent by July 2017. 
Melbourne 
Unusually for Melbourne, there were no new developments completed in the rst half of 2016, which resulted in the vacancy rate tightening by 80 basis points to 7.0 per cent during this period. Tenants looking for quality assets will have limited options over the next three years, given that the new wave of CBD core supply is only expected to come through in 2019/2020. Nearly all new supply being completed over the 2nd half of 2016 is spoken for by pre-committed tenants. 
Brisbane 
It is expected that Brisbane will continue to be a tenant’s market for the foreseeable future given the volume of vacant and sublease space available. The State Government has been increasingly active taking advantage of the favourable leasing conditions. Leasing enquiry has remained soft in the CBD market however, despite the soft leasing conditions, institutional investors have been active over the last 12 months, fiercely competing for prime stock when it has been brought to market. 
This article by Anneke Thompson appeared as part of Colliers International's CBD Office Research &amp; Forecast Report H2 2016. She is the national director of Research and can be contacted <a href="https://www.colliers.com.au" target="_blank">here</a>.
 
 
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Divergence in Australia’s CBD office markets unprecedented: Colliers

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<a href="https://www.colliers.com.au/find_research/office/cbd_office_-_first_half_2016/" target="_blank"></a>
GUEST OBSERVER
Australian CBD office space is just one percent of global office floorspace, however for such a small market it is remarkably popular with investors.
In our 2015 Global Investor Outlook survey, Sydney and Melbourne were ranked as the second and third most popular destinations in which global investors wanted to target.
<a href="https://www.colliers.com.au/find_research/office/cbd_office_-_first_half_2016/" target="_blank"></a>
London, which has an office market more than three times larger than Sydney, ranked first.
<a href="https://www.colliers.com.au/find_research/office/cbd_office_-_first_half_2016/" target="_blank"></a>
Offshore investors now own 17 percent of Australian office stock, around twice as much as they did five years ago. Investment levels continue to rise. In 2015, offshore investors accounted for 67 percent of total direct investment in CBD office buildings. If indirect investment is included, the proportion is a lot higher.
<a href="https://www.colliers.com.au/find_research/office/cbd_office_-_first_half_2016/" target="_blank"></a>
Australia's strong economy, high transparency and low sovereign risk continue to play a key role in driving investment decisions. However, yield compression is continuing to occur and some investors are beginning to see Australia as too expensive. We consider this is unlikely to lead to a significant reduction in offshore investment in CBD office investment in 2016.
<a href="https://www.colliers.com.au/find_research/office/cbd_office_-_first_half_2016/" target="_blank"></a>
The key challenge for offshore investors is that although Australia is a particularly popular target, the small size of the market makes it difficult for them to access stock.
 
<a href="/images/2016/02/24/Screen%20Shot%202016-02-24%20at%201.10.27%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/02/24/Screen%20Shot%202016-02-24%20at%201.10.27%20PM.png" alt="" width="790" height="554">
Nerida Conisbee is national director of research for Colliers International and can be contacted <a href="https://www.colliers.com/nerida.conisbee">here</a>.
 
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Prices soar as offshore investment dominates (Is Australia becoming too expensive?)

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GUEST OBSERVER
Office metro markets, like CBD markets, are driven by factors which differ from state to state and region to region, so any discussion of a ‘national’ metro market only serves to mask the various drivers of each of these markets. 
There’s no question that long-overdue Infrastructure investment along the eastern seaboard will be the primary driver of growth in metro markets in the coming decade.
According to Colliers Metro Office Research and Forecast Report- first half 2016, over 33 buildings in Sydney’s metro markets will be compulsorily acquired for the Metro Rail, putting downward pressure on vacancies and upward pressure on rents. In fact, many metro markets are now at a tipping point, with the first real opportunity since the GFC to experience significant growth.
But where will the positive effects be most strongly felt?
NSW is where the strength is
At the moment, the NSW state economy is the strongest in the nation, with robust employment growth and a healthy surplus. It is also the hub for infrastructure development, with projects like the Sydney Metro, WestConnex and the Parramatta Light Rail set to come online in the next 10 years.
The most recent state budget revealed a total spend of $68.6 billion over the next four years alone, a very positive scenario for those metro markets in line to receive infrastructure upgrades.
This is because efficient transport links allow for greater connectivity across all metro markets, and in turn, increase the attractiveness of metro accommodation to a broader tenant base.
In further good news, the stock withdrawal story we are seeing in the Sydney CBD market holds true in a number of other NSW metro markets. Colliers reports that between January 2015 and January 2016, metro office stock decreased Australia-wide from 7.34 million sqm to 7.29 million sqm as a result of withdrawal for residential conversion or infrastructure development.
As the same time, we have not seen the same influx of offshore money into these markets as we have in the major CBD office markets. With offshore investors continuing to favour CBDs, investors in metro markets are still predominately domestic. The proportion of domestic investors, compared with international investors is continuing to grow with Colliers reporting that domestic investors made up 55 percent of the acquisitions in 2013, 60 percent in 2014 and 65 percent in 2015.
Centuria’s ASX-listed Metropolitan REIT invests purely in metropolitan office and industrial assets across Sydney, Brisbane, Canberra and Adelaide. These assets have been valued at $396.7 million. Decreasing vacancies and increasing values have seen this fund trading well amongst both institutional and retail investors, highlighting the investor appetite for metro investment.   
Sydney’s north shore metro markets set to shine
In our view, some of the strongest metro markets are to be found on Sydney’s north shore, where the positive combination of residential conversion with acquisitions made for Metro stations will translate into improved vacancy and rental levels in the next few years.  
For example, fifteen commercial properties will be demolished along the north shore, in to make way for the Sydney Metro. At the same time, all new development is focused on residential accommodation, and with no new commercial development slated we expect a further tightening of supply and upward pressure on commercial rents.
As a result of the positive fundamentals, Centuria recently completed the purchase of part of the Zenith office tower in Chatswood, an area which we see as a major beneficiary of the Sydney Metro. Stage 1 from the northwest to Chatswood is scheduled for completion in 2019, and the second stage from Chatswood to the southwest via the CBD will put Chatswood right at the heart of Sydney’s transport network.
The most recent PCA figures show vacancy rates have dropped back to 6.6 percent in Chatswood which is the lowest vacancy rate for many years. We also expect demand to increase further due to the strong transport links already in place in Chatswood and the absence of any significant increase in supply. 
Looking forward, we are confident that Chatswood status as a major commercial and residential hub will be cemented by the benefits of the major infrastructure spend by the NSW State Government. 
Positive fundamentals in the CBD fringe, particularly in the south
Vacancies continue to fall in the city fringe as a result of leasing growth on the back of demand from tenants displaced by withdrawals for infrastructure and residential projects in both the CBD and locally.
The Southern CBD and fringe areas are undergoing a renaissance on the back of proximity to the rapidly growing residential area of South Sydney as well as demand from tenants displaced by the metro line. This area is particularly popular with advertising and media companies, resulting in over 10,000 sqm of demand in the six months to January 2016, according to Colliers. 
In late 2015, in conjunction with Mirvac, we acquired commercial property within the Australian Technology Park south of Sydney. The site is 14 hectares, three kilometres south of the Sydney CBD on the site of a $1 billion development for CBA, which we believe will have wide-ranging positive impacts on the broader Central to Eveleigh corridor.
So what’s the bottom line?  Our house view is that tenant demand for metro locations will continue to strengthen as CBD vacancy rates fall. Withdrawal of A and B grade stock for residential conversion and/or infrastructure development will leave many tenants in this market seeking cost effective solutions in those suburbs with good (and improving) transport links.
This means markets such as Chatswood, and the southern fringe of the CBD are likely to benefit. We have already taken advantage of a number of opportunities with compelling value, such as our purchase, in conjunction with global investment manager BlackRock, of The Zenith in Chatswood.
Ultimately, we remain convinced that the fundamentals of these metro markets in NSW make them ideally suited to providing stable, high yields and potential for capital growth that our investors have come to expect.
 Jason Huljich is chief executive officer, Unlisted Property Funds for <a href="https://centuria.com.au" target="_blank">Centuria</a>.
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NSW office metro markets set to shine

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GUEST OBSERVER
Office occupiers and their employees have a wide variety of locations to choose from.
We examine 12 of the most important real estate markets in the region. Discover the performance and prospects for the big ‘Global Powerhouses’ like London and Paris, fast-growing ‘Urban Accelerators’ like Stockholm, Berlin and Dublin, through to small but high profile ‘Contenders’ like Amsterdam, Frankfurt and Warsaw.
KEY FINDINGS
European cities have many of the characteristics of highly successful world cities that make them very attractive to workers looking for ‘urban buzz’ and a high quality city lifestyle. Their authentic environments, varied cultural experience and high quality of living makes the European cities in this study attractive not only to employees but also to employers.
New digital industries disrupt working practices and are growing at a faster rate than conventional finance and business services. Companies are searching globally for the Human Resources they need to win in this environment. This means that companies’ location choices will increasingly be made by the HR rather than premises departments. The questions they will ask are “which cities will help attract human capital?” rather than “where will property costs help save financial capital?”
Europe does contain some of the world’s global powerhouses: the top ranking cities which continue to attract people as well as global investment. Often, they act as hubs to wider, dispersed city networks. They are unlikely to lose this status in the foreseeable future and are adapting well to the digital age. London, Paris and Madrid now employ more people in their information and communication sectors than in their financial and insurance sectors.
London and Paris are the two most global cities in Europe and accommodation costs in these cities reflect that success. Large workforces result in high demand for space in the city which pushes up rents and land values in old cities where space is limited.
There is a big fall-off in annual accommodation costs per worker to the next tier of European cities. Milan, Dublin, Amsterdam, Moscow and Brussels are around half the cost of London at present.
The cheapest cities in Europe in which to accommodate staff are Warsaw, Berlin. Frankfurt, Madrid and Stockholm. Warsaw is just over a quarter of the cost of London.
In some cities, this expense ranking is likely to change. Workspace rents are forecast to rise over the next year in Amsterdam, Dublin, Paris, Madrid, Milan and Stockholm. They are broadly stable in Brussels, Frankfurt, London and Warsaw, giving occupiers more certainty on real estate costs.
Where real estate costs are scrutinised, it is becoming as important to look at residential affordability as well as commercial property costs. Young creative workers are increasingly attracted to good, small cities offering cheaper accommodation as they are priced out of the big global financial centres. This is part of the reason why some very small European cities like Berlin, Dublin and Amsterdam are hugely successful and punching above their weight economically. Their worldwide fame belies their size.
Brexit has raised questions on London’s future as a financial centre and speculation is rife as to which European city might win London’s business. The evidence of this report suggests that no single city will take London’s crown but rather the EU passporting functions of many institutions will be dispersed throughout Europe to a variety of cities for different reasons.
Some small cities, especially those in which it is easy for multinationals to do business, those with favourable tax regimes and strong English language capabilities could do well in attracting global companies but few of these cities have the stock capacity to accommodate many large relocations from London – or elsewhere, especially in the short term. Some cities which larger levels of office supply may find their corporate and personal tax regimes discourage some companies.
Taking a combination of measures into account, London still stands out as the most attractive European city for the finance sector. We think it will continue to serve as a global finance centre but in partnership with some smaller European cities for passporting functions.
Overall, there are good reasons to expect further growth in both the economies and real estate markets of many European cities. Often the strength of the city will buck the trend of the country in which it sits so national comparisons are less useful than city comparisons.
The strength of occupier markets should continue to attract global investment in many European cities and to start attracting it in others. The attractiveness of these cities to investors is important for occupiers in the long run as it will determine whether they can find sufficient workspace of the right type in the right place and whether housing is affordable for their key workers.
The economic and demographic strength of most of the European cities in this report is such that both occupier and investor demand should be assured.
<a href="https://www.propertyobserver.com.au/images/2017/03/16/pages-4-5-figure11.png" target="_blank">Click to enlarge</a>
<a href="https://www.propertyobserver.com.au/images/2017/03/16/pages-4-5-figure11.png" target="_blank"><img src="https://www.urban.com.au/images/2017/03/16/pages-4-5-figure11.png" width="600" height="315"></a>
Source: Savills World Research
 
Yolande Barnes is director, World Research at Savills and can be contacted <a href="https://www.savills.com/" target="_blank">here</a>.
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Euro cities punching above their weight economically: Yolande Barnes

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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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A major Townsville commercial office building has been acquired by Independent fund manager Castlerock, in the largest commercial office transaction in Far North Queensland.
The Melbourne-based group secured the State Government tenanted 445 Flinders Street in a deal brokered by Colliers for $92,855,000 million.
The deal represents a yield of 6.9 per cent on the passing income.
Settlement was pushed forward two months to the end of March due to a faster than expected influx of investors targeting long-term sustainable assets with strong and stable leases, according to the agents.
Castlerock director, Adam Bronts, said it was the company’s largest transaction to date and reflected a strategy to start moving into bigger transactions.
The purchase comes 18 months after Castlerock acquired 44 Nelson Street in Mackay for $52.4 million, again in a deal brokered by Colliers.
Both buildings are tenanted long-term by the Queensland Government.
“The purchase of Flinders Street in Townsville is our largest asset acquired to date and confirms our approach to purchasing long-term sustainable assets with long-term government tenants,” said Mr Bronts.
“It is a significant building in the city and a fantastic asset for our investors.”
445 Flinders Street acts as the region’s primary State Government headquarters and is 89 per cent leased to the government until September 2028, with a five-year lease renewal option.
Designed by ML Design, it is classified as an A-grade building comprising 11,383 square metres of floorspace across nine levels and offering the largest column-free floorplates in the local market.
It includes an additional 252 square metres of retail at ground level and three-level podium carpark accommodating 195 parking bays that offer Townsville’s best carparking ratio of 1:60.
It is occupied by the Department of Transport and Main Roads, the Department of Natural Resources and Mines and the Department of Health and Education.
The building also houses the Queensland Government’s North Queensland Recovery Centre, which because of its critical nature, has been highly specified and is able to operate without power or water for up to five days. Designed and built to an Importance Level Four classification, it can operate in the event of a natural disaster.
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Government-occupied Townsville office building sold in record deal

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The office market across was strong last year in both the Sydney CBD and metropolitan centres, however it is too early to predict the impact COVID-19 will have on prices, according to the latest report from valuation firm Herron Todd White.
“The two main markets in Sydney that we are watching closely this year are the CBD and Parramatta,” the April report said.
“They continue to dominate in terms of demand, supply and infrastructure projects.”
The Sydney CBD vacancy rates recorded by the Property Council of Australia (PCA) in January 2020 were 3.9 percent.
The firm found that tight vacancy kept rentals at record highs, particularly for prime and A grade stock, however agents began reporting softer demand for B through to D grade stock throughout 2019.
New approvals for office accommodation are low across the CBD, with approvals being generally focused on residential and hotel redevelopment rather than traditional office space.
According to the PCA, however, 154,424 square metres of new stock is due to enter the market in 2020 and 96,548 square metres in 2021.
“We continue to note that strong demand from owner-occupiers appears to be propelling this value growth,” the report continued.
The current interest rate environment is fuelling borrowing power and market sentiment across the board.
The current low cost of money combined with the impact of rising rents has seen a significant increase over the past two years in tenants looking to purchase to owneroccupy.
This appears to be a strong driver in increasing capital values as tenants looking to owneroccupy as well as owner-occupiers in general are typically less reliant on potential yields and as such, are more willing to pay a premium to secure the property they desire.
We expect this trend to continue this year and have already witnessed some strong sales in 2020 that would indicate that demand is still there.
Parramatta continues to emerge as the prime commercial precinct of the Sydney metropolitan area, underpinned by a significant investment in infrastructure and the completion of a number of development projects including the Parramatta Light Rail due for completion in 2023, the new Powerhouse Museum, upgrades to Westmead Hospital and Parramatta Square and the upgrades to the M4 Motorway, increasing connectivity and appeal of commercial space within the CBD to the greater Sydney metropolitan area.
“Parramatta remains the best performing metropolitan CBD in the country, with vacancy at 3.2 percent as at January 2020 (source: PCA) and increases in net face rents, primarily driven by low supply additions and the draw of more affordable rentals than the city,” the report said.
While 157,643 square metres is currently under construction and due to come online over the next two years, there is currently 82.27 percent pre-commitment for this space.
Further to this, the lack of new supply of commercial stock within the Sydney CBD has also created an increase in appeal to investors and owner-occupiers from a sales perspective, considering the comparatively lower capital outlay required to enter the market, combined with the centralised location of the commercial hub and prevailing low interest rates, making it the next sought after commercial centre.
“Given the performance of the locale, lack of stock and the investment in infrastructure, we consider the Parramatta commercial market to generally illustrate a positive outlook moving into 2020 with increases in net face rents, prevailing low vacancy rates and reductions in yields,” the firm concluded.
“We note that the emergence of the Coronavirus (Covid-19) pandemic has had a significant impact on global economic growth and the Australian economy.”
“We consider this will have an adverse impact on the Sydney commercial office market in general but that like all markets in Sydney it is too early to tell the impact.”
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Sydney office market still strong but faces tough road ahead: HTW

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The total vacant space available for occupancy in Melbourne's CBD office market will be nearly 235,000 square metres over the next three years, however only 32,551 square metres is expected to be available in 2020.
That is according to the Melbourne CBD Office Market 2020 and Beyond report from M3 Property.
<img src="https://www.urban.com.au/images/2020/8/5/M3%201.png" alt="">
The bulk – more than 91,000 square metres - will hit the market in 2021, and a further 66,350 square metres will become available in 2022.
The report found that while the market has already been hit hard by the Coronavirus, with many tenants delaying new requirements, it is new development space already under construction that will be the key upward driver of vacancy over the next six months.
<img src="https://www.urban.com.au/images/2020/8/5/M3%202.png" alt="">
The good news, according to Director Commercial, Gary Longden, is that a potential blowout in backfill space, which may have dramatically amplified the vacancy carnage, now seems likely to have been averted by the extension of the JobKeeper program.
"There seems little doubt that employers would have faced the unenviable task of letting staff go without JobKeeper support and so the decision to prolong the package is pretty much a game changer, you might say, at least in the short term."
"In terms of vacancy it now seems more likely that we will see a much sharper upward trend over the next two years than we will see this year,'' Mr Longden added.
National Director Research, Amita Mehra, said tenants requiring space in the sub 3000 square metre range looked likely to punch above their weight in terms of their impact on the market's fortunes with the cohort responsible for the majority of tenant enquiries that had been put on hold indefinitely.
"This cohort contributed to a little more than 22 per cent of the total area required, but the indecision in that sector of the market may have a more profound short-term impact than those tenants with larger leasing requirements who, of necessity, need to plan much farther ahead"
"We expect requirements for space less than 3000sqm to be on hold for as much as 12-18 months with a potential increase in the probability of tenants exercising options over their existing leases,'' Ms Mehra said.
The report further found that the Business Services employment category - the second largest occupier of office space in the CBD - had the highest percentage of total jobs lost (7292) and that with current workspace space ratios in that sector at 17.36 square metres, the loss may result in 126,570 square metres of sublease or backfill space.
On the other hand the Finance &amp; Insurance sector has been least affected with no jobs lost for the same March 14 to May 2 period.
Mr Longden said trend unemployment rates across employment categories and their impact on a building's tenancy profile may well have a negative result on building values.
Ms Mehra said m3property's analysis of the Coronavirus's potential impact on the Melbourne CBD vacancy rate had raised three forecast scenarios according to potential variations in tenant demand, net absorption and potential backfill space availability.
"With Scenario 1 - based on current economic and employment forecasts - vacancy would first peak at 6.51% by the end of 2021 and reach a second peak by the end of 2024 at 6.90%."
"Under Scenario 2 – based on the long-term average net absorption – we expect vacancy will rise to 6.73% by the end of 2020 and reach a second peak by the end of 2024 at 7.83%, and under Scenario 3 – based on the previous downturn net absorption averages – we see vacancy continuing to rise from the end of 2020 (7.33%) and reach a peak of 9.50% by the end of 2024,'' she concluded.
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Melbourne CBD office market faces uncertain road ahead: M3 Property report

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Premium flexible office space provider Work Club Global is set to open its first Brisbane site, its sixth nationally, in the new retail and commercial zone, Breakfast Creek Lifestyle Precinct.
They've signed on to a 10 year lease for 1,600 sqm in the new precinct by developer LSH Property Australia and is set to open in 2021.
Work Club Global provide premium flexible office space in Sydney’s Barangaroo and Melbourne’s Collins Street.
The likes of Mercedes-Benz Brisbane and Queensland Sotheby’s International Realty are signed up for the new five level 32,710 sqm waterfront precinct.
The multi-award-winning chef Shannon Kellam will also be bringing his new culinary offerings MICA, Lumiere Events and Culinary Studio, and production kitchen The Kneadery, to the precinct.
 <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/2020/8/25/Breakfast%202.jpg" alt="">
Work Club Global founder and chairman Soren Trampedach, says Work Club Global are committed to creating premium flexible work environments and providing experiences that extend well beyond the traditional serviced office.
"We are thrilled to join forces with LSH Property Australia to bring the Work Club Global brand to Brisbane, and to offer businesses access to our best-in-class spaces and experiences.”
 
Over the coming years, LSH Property predict there is likely to be dynamic movement within the serviced office space, and partnering with Work Club Global enables them to provide a first-class flexible offering to Brisbane based businesses of all kinds.
Nicholas Quince, chief financial officer and director at LSH Property Australia, said, “Our vision for Breakfast Creek Lifestyle Precinct is to create the very best in experience, and this extends to the business community." 
 
 
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