CBD OFFICE First Half 2020 - Research & Forecast Report - Colliers International
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Research &
Forecast Report
Accelerating success.
CBD
OFFICE
First Half 2020
Accelerating success.
MAXIMISE THE
POTENTIAL OF
DATA
IN-DEPTH DATA At the forefront of the
real estate industry, we
Granular datasets covering historical
understand the demand
and forecast data with over 2,000
datapoints updated quarterly. for reliable and accurate
data is more prevalent
than ever.
Our enterprising
technology, Colliers Edge,
offers comprehensive
DETAILED property data that enables
TRANSACTIONS you to delve deeper into
the Australian property
Individual reporting of
market, using data to
major transactions.
become more informed
and deliver enduring value.
Colliers Edge is a data
subscription service
developed by our in-
INSIGHTS house research experts,
Our experienced research team who collaborate with
will help you understand quarterly our National network
changes, as well as broader themes of operators to drive
behind each sector and market. exceptional results.
Joanne Henderson
Director | Research
+61 410 391 093
joanne.henderson@colliers.com
colliers.com.au/colliersedge
CONTENTS
Snapshot | CBD Office 4
National Overview 5
Capital Markets 6
Sydney 8
Melbourne 10
Brisbane 12
Adelaide 14
Canberra 16
Perth 18
Auckland 20
Our Expertise 22
Accelerating success.
CBD OFFICE | Research & Forecast Report | H1 2020
CBD OFFICE
SNAPSHOT
NET SUPPLY NET FACE RENTS NET EFFECTIVE
VACANCY RATE INCENTIVES YIELD
(SQM) ($/SQM P.A.) RENTS ($/SQM P.A.)
Year to Jan- Year to Jan-
Current Jul-20 (f) Current Jan-21 (f) Current Jan-21 (f) Current Jan-21 (f) Current Jan-21 (f)
2020 2021 (f)
SYDNEY 3.9% 5.0%
Premium 3.6% 4.3% $1,172 $1,209 21% 23% $893 $891 4.5% 4.4%
-56,952 59,484
A Grade 2.6% 4.8% $936 $966 19% 21% $723 $727 4.9% 4.7%
B Grade 5.2% 4.3% $789 $792 20% 21% $604 $591 5.2% 5.0%
MELBOURNE 3.2% 4.0%
Premium 1.7% 0.3% $784 $840 25% 26% $596 $624 4.5% 4.4%
-3,031 317,288
A Grade 2.1% 3.9% $638 $684 28% 29% $456 $482 4.9% 4.7%
B Grade 6.4% 7.4% $509 $532 27% 27% $373 $390 5.0% 4.9%
BRISBANE 12.7% 12.0%
Premium 3.2% 3.9% $705 $725 37% 35% $383 $406 5.1% 5.0%
33,263 2,000
A Grade 13.7% 9.5% $598 $607 38% 37% $318 $327 5.6% 5.4%
B Grade 14.3% 17.4% $481 $485 41% 40% $226 $231 6.5% 6.4%
PERTH 17.6% 17.3%
Premium 8.1% 6.9% $710 $712 41% 40% $417 $436 5.9% 5.7%
40,308 -929
A Grade 16.2% 16.1% $578 $578 49% 49% $293 $308 6.6% 6.4%
B Grade 26.8% 26.7% $380 $380 50% 50% $190 $190 7.0% 6.8%
ADELAIDE 14.0% 13.4%
Premium 15.3% 9.3% $398 $402 35% 30% $213 $238 6.4% 6.2%
18,732 22,655
A Grade 13.8% 12.3% $402 $410 34% 30% $230 $252 6.5% 6.3%
B Grade 13.4% 13.7% $338 $343 37% 35% $177 $185 7.1% 7.1%
CANBERRA 12.0% 11.9%
A Grade 8.4% 8.7% 10,185 31,550 $400 $401 18% 18% $313 $311 5.6% 5.4%
B Grade 17.2% 16.9% $290 $288 25% 25% $191 $191 7.3% 7.1%
AUCKLAND* 4.7% 6.7%
Premium 0.5% 4.9% $550 $611 11% 19% $490 $498 5.1% 4.9%
-9,153^ 42,893
A Grade 3.8% 5.5% $440 $447 10% 13% $394 $391 6.0% 5.8%
B Grade 5.2% 8.1% $339 $345 12% 11% $297 $297 6.1% 5.9%
Note: ‘current’ refers to December 2019 figures.
* Auckland data forecasts December 2020
^ Net supply for year to December 2019
4
CBD OFFICE | Research & Forecast Report | H1 2020
NATIONAL
overly vacancy rate, but also the amount of stock actually available
to occupiers needing space, and therefore future rental growth.
OVERVIEW
The analysis of take up of refurbished Sydney stock provides a
useful insight in to what might happen in other markets, particularly
Melbourne, whose CBD is about to go through a similar period of
withdrawal and refurbishment activity.
By Anneke Thompson Over the next 5 years, we are forecasting substantially reduced
National Director | Research withdrawal activity for Sydney, with a total of 280,000sqm
anneke.thompson@colliers.com
earmarked to be taken out of stock. An even greater proportion –
Where did all the Sydney office space go? or 57% - is withdrawal for refurbishment, mostly related to tenant
moves in to the new developments completing over the next 2 or 3
Over the last 5 years, the Sydney CBD has recorded 700,000sqm
years.
of withdrawals, or 14% of the total market stock. This is about the
size of the entire Parramatta office market. Over the same period of
time, just under 700,000sqm has been added to the Sydney market
in the form of new or refurbished stock – effectively meaning there
has been no change in the size of the market in 5 years. The biggest
impact on the market has been in the B and C Grade sectors – where
over 20% of stock has been withdrawn.
While acquisitions and demolitions of office space related to the
Sydney metro project are often cited as a key reason behind these
withdrawals, only about 8% of total withdrawals since 2015 was
directly related to that project. Our analysis of all withdrawals
in the Sydney market shows that 19% of space was withdrawn
permanently for conversion to another use, 25% was demolished to
make way for a new office development, while just over half (51%)
was withdrawn to be refurbished and brought back to market. The
average amount of time that the space is taken off market in the
Sydney CBD is 13 months.
One of the key reasons that the Sydney CBD office market has
maintained such low vacancy rates, is that when this refurbished
space has been brought back to market, 67% of the space has
already been leased. This means that very few large chunks of
vacated office space actually comes back in to stock as vacant space.
In 2020, we are expecting a large amount of space to re-enter
the market. In fact, 44% of all space withdrawn since 2015 is due
to be added back to market in 2020. The pre-commitment rate of
this space at time of writing is 48%. Colliers Research look closely
at these figures and what happens to withdrawn space while it Grosvenor Place, 225 George Street, Sydney
Leased on behalf of Dexus, Mirvac and Arcadia
is out of the market, as it has a significant impact on not only the
Sydney Withdrawals by purpose, 2015 to 2019 Sydney CBD - takeup of withdrawn space at completion
100%
Full Refurbishment
90%
80%
77,021
Partial Refurbishment
70%
137,826
60%
New Development 50%
40%
30%
Conversion
82,602
20%
67,645
10%
Metro
0%
2014 to 2019 2020 (f)
0% 5% 10% 15% 20% 25% 30%
Vacant Committed
Source: Colliers Edge, PCA OMR Jan 2020 Source: Colliers Edge
5
CBD OFFICE | Research & Forecast Report | H1 2020
CAPITAL
MARKETS
By Anneke Thompson
National Director | Research
anneke.thompson@colliers.com
A major drop in the risk free rate in Australia over 2019 resulted
in Australian office property becoming one of the most attractive
investment locations globally. However, with a limited supply of re-
investment opportunities available for vendors, along with projected
rental growth in most markets, many potential sellers are holding on
to their assets rather than selling. This trend magnified the supply/
demand imbalance of office investment opportunities in Australia
throughout 2019.
The past year saw $23.5 billion worth of assets transact, up from
the $21.2 in 2018, which itself was a record year. What was notable
about 2019 was the lack of on market opportunities in the key
markets of the Sydney and Melbourne CBDs. We expect that in 2020
on market opportunities will remain difficult to come by in these
cities, however more activity is expected in Brisbane, Adelaide and
Perth.
Of particular note over the past 2 years is the increasing interest
amongst institutional investors in metro markets. This is both a result
of a of lack of investment grade assets available to purchase in the
CBDs and also the high calibre of tenant covenants and WALEs
becoming more widely available.
National Prime Grade CBD Office Yields and Spreads
10% 5%
8% 4%
Spread to Risk Free Rate
6% 3%
22 William Street, Melbourne
Cap Rate
4% 2% Sold on behalf of a private investor for $52,000,000
2% 1%
Office Property Sales by State
0% 0% $25.00
-2% -1%
$20.00
Dec-12
Dec-15
Dec-18
Jun-99
Dec-00
Dec-03
Dec-06
Dec-09
Dec-97
Jun-14
Jun-11
Jun-17
Jun-02
Jun-05
Jun-08
$15.00
Billions
National Prime Grade Cap Rate (LHS) Spread
$10.00
Source: Colliers Edge, RBA
$5.00
$-
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2009
ACT NSW QLD SA TAS VIC WA
Source: Colliers Edge
140-180 City Walk, Canberra
Sold on behalf of Dexus
6
CBD OFFICE | Research & Forecast Report | H1 2020
Investment fundamentals will strengthen in 2020
The Australian office market continues to be viewed by the global
investment community as one of the key markets primed for further
yield compression and income growth. Macroeconomic conditions,
as well as strong occupancy levels in Sydney and Melbourne and
improving occupancy in other markets, have been the critical driver
for the Australian Office market in 2019 and will continue to be
the case into 2020. We expect further yield compression expected
across the national office landscape in 2020, which is a significant
change in outlook from this time last year.
Australian office assets are uniquely placed to attract an ever-
increasing pool of global capital looking for a relatively high yielding,
secure property investment. While record low risk free rates can be
found in other markets globally, Australia’s major CBD and metro
markets still offer high returns relative to the risk free rate. Sydney
and Melbourne both trade at around 370 bps above the risk free rate 247 Adelaide Street, Brisbane
(as at Dec 2019), which is very favourably comparable to other major Sold on behalf of Lake Nathan Pty Ltd for $18,590,000
office markets. Adelaide, Perth, Brisbane and Canberra offer even
greater value, however with less tenant depth than the comparable
global cities.
Global CBD Office Cap Rate spreads
Hong Kong
Vancouver
Singapore
Manhattan
Toronto
Paris
Munich
Berlin
Tokyo
London City
Chicago
Melbourne
Sydney
Brisbane
Canberra
Perth
Adelaide
0% 1% 2% 3% 4% 5% 6%
Source: Colliers Edge
62 Pitt Street, Sydney
Sold on behalf of Kingsmede for $50,000,000
TO DOWNLOAD A COPY OF THE 2020
OFFICE INVESTMENT REVIEW, GO TO:
https://www.colliers.com.au/en-AU/
Countries/Australia/Capital-Markets-
Investment-Review
7
CBD OFFICE | Research & Forecast Report | H1 2020
SYDNEY
OVERVIEW
Market Indicators - Dec 2019 The Sydney CBD office market remains extremely tight for occupiers.
A minor uptick in the vacancy rate over the six months to Jan 2020
AVERAGE NET FACE RENTS ($/m2) from 3.7% to 3.9% was caused solely by an increase in sublease
Prime Secondary space.
L H L H
$914 $1,194 $728 $850
Direct vacancy actually decreased over the same time frame, by a
very minor 2,019sqm. Although sublease space has been on the rise,
AVERAGE YIELDS the vacancy factor is still below the 20-year average of 0.7%.
Prime Secondary
L H L H
4.63% 4.78% 5.16% 5.25% The size of the market peaked in July 2017, when Sydney grew to be
5.098 million sqm. Since then, Sydney has lost 146,077sqm of office
AVERAGE CAPITAL VALUE ($/m2) space, equating to 2.9%.
Prime Secondary
L H L H
$19,092 $25,788 $13,819 $16,517 There is now a clear divergence in prime and secondary grade
vacancy rates, with the January 2020 figures recorded at 3.0% and
5.4% respectively, and it is our view that this trend will continue.
JAN-2020 JAN-2021 (F)
NET SUPPLY
59,484m2
-56,952m2
TOTAL MARKET
VACANCY RATE
5.0%
3.9%
Sydney CBD Vacancy Sydney CBD Office Vacancy Outlook
14%
Forecast
Prime Secondary
12%
10%
Vacancy Rate July 2017 5.80% 6.30%
Vacancy Rate
8%
6%
Change in stock (2017 to 2020) sqm 14,614 -160,691
4%
Change in vacancy (2017 to 2020) sqm -82,504 -25,763 2%
0%
Jan-10
Jan-11
Jan-12
Jan-14
Jan-15
Jan-17
Jan-18
Jan-19
Jan-13
Jan-16
Jan-00
Jan-01
Jan-02
Jan-04
Jan-07
Jan-08
Jan-09
Jan-03
Jan-05
Jan-06
Jan-20
Jan-21
Jan-22
Jan-23
Jan-24
Jan-25
Vacancy Rate Jan 2020 3.00% 5.40%
Prime Secondary
Source: Colliers Edge, PCA OMR Jan 2020 Source: Colliers Edge, PCA OMR Jan 2020
8
CBD OFFICE | Research & Forecast Report | H1 2020
By Anneke Thompson Sydney Demand through the 2022 to 2025 supply
National Director | Research cycle
anneke.thompson@colliers.com
Our previous report (H2 2019) spoke to the supply cycle emerging in
The Sydney CBD office market remains extremely tight for occupiers. the Sydney CBD between 2022 and 2025, as Quay Quarter Tower,
A minor uptick in the vacancy rate over the six months to Jan 2020 Circular Quay Tower and the various Over Station Developments
from 3.7% to 3.9% was caused solely by an increase in sublease (OSDs) reach practical completion. While future demand is certainly
space. Direct vacancy decreased over the same time frame, by a more difficult to determine than supply, there are reasons to believe
very minor 2,019sqm and now represents 3.5% of the total market, that the Sydney CBD has strong demand fundamentals leading in
while sublease vacancy is 0.5% of the market. Although sublease to this supply cycle. A key determinant in our demand forecasting
space has been on the rise, the vacancy factor is still below the 20- is determining what occupier markets are in expansionary cycles.
year average of 0.7%. Traditionally, analysts of office markets have looked at upcoming
Withdrawals continue to play a large role in the overall market lease expiries in order to understand demand, and certainly these
conditions. Whilst the completion of 60 Martin Place, Daramu House major leases are important pre-commitment opportunities. However,
and 24 Campbell Street in the second half of 2019 added just over the strength of an overall market is determined by both its depth of
65,000sqm to total supply (at an almost 100% pre-commitment rate), demand (i.e. the volume of occupier types in the market) as well as
over 100,000sqm of stock was withdrawn from the market, resulting a market’s exposure to growth industries. On both these measures,
in a reduction in the total size of the Sydney CBD office market. the Sydney CBD rates very highly. The Sydney CBD is the preferred
The size of the market peaked in July 2017, when Sydney grew location of major IT employers, including Facebook, Canva, Atlassian
to be 5.098 million sqm. Since then, Sydney has lost 146,077sqm and LinkedIn. While we do expect more cost conscious tenants
of office space, or 2.9%. A reduction in secondary grade supply of to consider alternative premises outside of the CBD, including
160,691sqm was the main driver behind the drop in overall supply, Parramatta and North Sydney, those tenants who are in a growth
however, trends in vacancy are very different. In fact, since the phase and have staff attraction and retention as a key priority will
market size peak in July 2017, prime grade vacancy has reduced continue to prefer a CBD location. Opportunities will arise in the
by 82,500sqm (or 48%) while secondary grade vacancy has only next supply cycle to consolidate these major IT occupiers into single
reduced by 25,800sqm (20%). There is now a clear divergence in locations, as some have been forced to expand across several
prime and secondary grade vacancy rates, with the January 2020 locations in this tight supply cycle. In addition, it is our view that there
figures recorded at 3.0% and 5.4% respectively, and it is our view is significant pent up demand in Sydney, as many major occupiers
that this trend will continue. are at headcount capacity. While both occupiers and landlords
continue to push floorspace ratios (FSRs) lower, there is a limit to
Despite its price point as the most expensive office rents in the what office buildings can accommodate, and this is likely to force
country, prime grade Sydney CBD office space continues to be tenants to expand as development and refurbished space becomes
highly sought after, evidenced by the extremely low vacancy rate. available.
The reason for this can be found in Sydney’s historic net absorption
figures, and the corresponding changes in white collar employment. Have Sydney rents peaked?
On a number of several measures the NSW jobs market has been the Given the likelihood of continuing favourable demand conditions,
strongest in the country for some time, including by unemployment our forecast is for continued growth in net face rents in the Sydney
rate (lowest state rate in the country), jobs growth and jobs available. CBD. However, the sense of urgency from Flexspace tenants has
According to Deloittes Access Economics, an additional 17,500 office noticeably waned since mid 2019, and this has had the effect
workers have been based in the Sydney CBD since July 2017. At the of moderating rental growth, despite continued demand from
same time, roughly 6,750 office workers have been displaced from other sectors. A Grade net face rents grew 7.1% over 2019, while
secondary space in the CBD1. Even if we assume only 60% of these Premium grade grew by a more moderate 3.4%. We believe the
ex-secondary space workers remained in the city in prime grade abovementioned structural changes and supply cycles will take effect
space, it means that each additional ‘prime grade’ employee since the in incentives for all grades of space, as developers compete more
market size peaked 2.5 years ago has absorbed only 4.5 sqm each. aggressively for tenants, and a flattening out of rents in secondary
For context, the equivalent figure in Melbourne is 10.5 sqm of prime grade. Gross incentives are expected to rise by 2bps for prime grade
grade absorption per person. space over 2020, as net face rents grow by 3.1%. For secondary
grade space, we expect very little growth in face rents, and at least a
What we know is that occupancy within buildings and tenancies
160 bps rise in incentives.
themselves has become extremely tight, and corporates are
managing this by demanding space in prime grade assets that can
accommodate tighter floor space ratios. Occupiers are also using
Flexspace options, which have grown in the CBD on the back of
demand side factors and not, importantly, because of supply side
opportunities. 1 This figure is calculated by assuming each worker in secondary
space occupied 20sqm, and dividing this by the total secondary space
vacated i.e. the negative net absorption figure between July 2017 and
January 2020
9
CBD OFFICE | Research & Forecast Report | H1 2020
MELBOURNE
OVERVIEW
Market Indicators - Dec 2019 Melbourne’s vacancy rate fell to 3.2% as at January 2020 and is
the lowest among the capital cities. This is well below the ten-year
AVERAGE NET FACE RENTS ($/m2) average of 6.5%. The office market continues to tighten as tenants
Prime Secondary compete for limited space options, resulting in increasing rents.
L H L H
$618 $805 $464 $554 6 month net absorption in Melbourne turned negative (-10,462sqm)
for the first time in six-and-a-half years as a combination of stock
AVERAGE YIELDS withdrawals and limited new space meant occupancy actually
Prime Secondary declined.
L H L H
4.66% 4.74% 4.92% 5.05% A total of 270,000sqm of space is expected to be completed in the
next 6 months, and a huge net absorption figure of 200,000sqm
forecast over that time.
AVERAGE CAPITAL VALUE ($/m2)
Prime Secondary
L H L H Most stock being vacated to move in to new developments over the
$13,087 $17,336 $9,192 $11,253 next 6 months will be withdrawn for refurbishment. We expect strong
take up of this space while these refurb projects are occurring, thereby
muting the ‘backfill’ effect of this supply cycle.
JAN-2020 JAN-2021 (F)
NET SUPPLY Rents will continue to grow in the next 12 months, as new supply
317,288m2 completing in 2020 provides next to no new options for tenants,
and most associated backfill is withdrawn from the market for
refurbishment. Prime and secondary grade rents are forecast to
-3,031m2
increase by 7.2% and 4.6% respectively.
TOTAL MARKET
VACANCY RATE
4.0%
3.2%
Melbourne CBD Office Vacancy Rate and Net Absorption Melbourne CBD Net Face Rents by Grade
200,000 12% $1,000
Forecast
Forecast $900
10%
150,000 $800
$700
8%
100,000
$600
$500
6%
$400
50,000
4% $300
$200
-
2% $100
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-08
Dec-07
Dec-09
Dec-15
Dec-16
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
-50,000 0.00%
Jan-20
Jan-21
Jan-22
Jan-23
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
PREMIUM A GRADE B GRADE
6 mth Net Absorption Vacancy Rate (%) 10 Year Average
Source: Colliers Edge, PCA OMR Jan 2020 Source: Colliers Edge
10CBD OFFICE | Research & Forecast Report | H1 2020
By Sarah Walker
Manager | Research
New Development Trends
sarah.walker@colliers.com There has been a notable shift in office designs towards
complementing the changing office environment and contemporary
Net absorption in Melbourne’s CBD turned negative for the first time
tenant desires. The fight to retain staff in workplaces puts pressure
in six-and-a-half years, with occupancy declining by 10,432sqm
on businesses to ensure they are providing the latest technology and
over the 6 months to January 2020. The amount of office stock
superior working conditions. Office workers have moved beyond
added in the last 6 months was very low (13,069sqm), while large
searching solely for the best designed space and have begun to
chunks of space were withdrawn from the market for refurbishment,
assess how the space actively helps collaboration and performance.
such as 750 Collins Street and 150 Lonsdale Street. With limited
Workers want flexibility to work both remotely and from a core office
stock additions and continued strong demand, Melbourne remains
location and given the outlook for office supply is very constrained,
the tightest office market across the Australian capital cities as at
tenants are now being forced to utilise their space in the most
January this year and the vacancy rate continued to fall despite
efficient manner possible.
reduced occupancy, from 3.4% in July 2019 to 3.2% in January
2020. There are very few options for tenants in the market,
particularly for requirements over 5,000sqm.
With high pre-commitment levels for new developments and
strong levels of leasing demand for any remaining space, Colliers
International forecast vacancy to remain below 4% for the next 3
years. A total of 270,000sqm of new office space will be added in
the first half of 2020, of which 98% has already been pre-committed
or is under offer. We expect actual additions to vacant space
available to market to be only 60,000sqm – a very small increase in
such a high supply environment. In a turnaround from the previous
6 months, we are expecting huge net absorption levels in the first
half of 2020 – at close to 145,000sqm of increased occupancy. This
means that around 10,000 to 15,000 office workers will move in to or
around the CBD over the next six months.
Given the continuing tight conditions in Melbourne, we expect rental
growth of 7.2% and 4.6% for Prime and B grade assets respectively
over the coming 12 months, as employment and demand conditions
remain very strong.
What will the backfill impact on Melbourne be?
Tower 1, 30-40 Digital Drive
Concerns on the amount of backfill space returning to the market Appointed on pre-commitment leasing on behalf of Digital Harbour
over the next two years are growing, but early indications are that
this space will be absorbed at a rapid rate. Sustained employment
growth, particularly for white collar jobs in Victoria will continue
to support demand for office space. The major occupier industries
in the Melbourne CBD – Government, Health, IT, Education, Super
Funds and Engineering firms – are some of those experiencing good
employment growth conditions. We also expect that most space
vacated as part of the completion of 447 Collins, 477 Collins, 80
Collins South, Two Melbourne Quarter and 130 Lonsdale Street will
be withdrawn from market for some time while it is refurbished. Up
to 80,000sqm is forecast to be vacated & withdrawn in H1 2020
alone. The impacts on withdrawals in the Sydney market gives us
a clue as to what may happen to this stock while it is offline. Over
the last 5 years the Sydney CBD market saw over 600,000sqm
of withdrawals to make way for new developments, the Sydney
Metro project, conversion to alternative uses and for refurbishment.
Over the same time, around 265,000sqm of that space has come
back to market, at an average pre-commitment rate of 67%. Given
Melbourne’s strong demand fundamentals, our view is that a similar
rate of take up will occur as this backfill stock is refurbished.
380 La Trobe Street, Melbourne
Managed on behalf of Wharf Street Family Investments Pty Ltd
11CBD OFFICE | Research & Forecast Report | H1 2020
BRISBANE
OVERVIEW
Market Indicators - Dec 2019 The outlook for the Brisbane CBD leasing market looks promising
and is supported by consistent gross face rental growth across all
AVERAGE NET FACE RENTS ($/m2) building grades. Rents for Prime assets have reached the strongest
Prime Secondary rate of growth in 11 years, with Premium gross face rents increasing
L H L H 5.8 per cent and A grade rents increasing 3.8 per cent in 2019.
$623 $681 $466 $497
Total vacancy rose from 11.9 per cent in July 2019 to 12.7 per
cent in January 2020, largely driven by the completion of the
AVERAGE YIELDS 300 George Street development, adding 47,700sqm of A grade
Prime Secondary space. Approximately 5,560sqm has been pre-leased to Urbis and
L H L H Transurban, with both tenants planning occupancy in Q1 this year.
5.19% 5.49% 6.21% 6.79% We understand the State Government has conditionally committed to
circa 24,400sqm, with approximately an additional 4,200sqm under
AVERAGE CAPITAL VALUE ($/m2) negotiation with other prospective tenants, leaving vacant around 28
Prime Secondary per cent of the new stock.
L H L H Premium grade stock remains in high demand, reporting the largest
$11,417 $13,181 $6,853 $8,001 six-month net absorption by grade, totalling 18,480sqm and equivalent
to over 75 per cent of the total market net absorption (of 23,581sqm).
The A grade market also recorded a solid net absorption of 11,809sqm
JAN-2020 JAN-2021 (F)
over the past six months.
NET SUPPLY New supply under construction remains constrained, with our
33,263m2 2,000m 2 estimates showing an increase in Prime office stock of 110,000sqm
between 2020 and 2022. Circa 67,000sqm of the new supply is
pre-committed, leaving circa 43,000sqm potentially vacant. The
expectations are that the available space in these new developments
will reach pre-lease agreements prior to its respective practical
TOTAL MARKET
VACANCY RATE completion date.
12.7% 12.0% Over the past six months, developers have shown increasing interest
in Premium office developments, transitioning three projects to
planning stage with expectations to deliver circa 188,000sqm over
the medium term. Once completed, these projects are expected to
increase the Premium CBD office market stock by over 55 per cent.
Brisbane CBD Office Vacancy by Grade Brisbane CBD Office - YoY Gross Face Rental Growth by Grade
25% 10%
Forecast
Forecast
8%
20%
6%
15% 4%
2%
10%
0%
5% -2%
-4%
0% -6%
Jan-10
Jan-11
Jan-12
Jan-13
Jan-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-07
Jul-08
Jul-09
Jan-07
Jan-08
Jan-09
Jul-20
Jul-21
Jul-22
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-20
Jan-21
Jan-22
Jan-23
Dec-20
Dec-21
Dec-11
Dec-14
Dec-16
Dec-17
Dec-18
Dec-19
Dec-10
Dec-12
Dec-13
Dec-15
Jun-21
Jun-20
Jun-16
Jun-19
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-17
Jun-18
Premium A grade B grade Total
Premium A Grade B Grade
Source: Colliers Edge, PCA OMR Jan 2020 Source: Colliers Edge
12CBD OFFICE | Research & Forecast Report | H1 2020
By Karina Salas effective rents for Prime assets was also strong in 2019. Premium
Associate Director | Research net effective rents recorded the largest annual growth of 6.6 per
karina.salas@colliers.com
cent, followed by A grade net effective rental growth of 1.2 per cent
Premium development projects attracting in 2019. We forecast a gradual increase of net effective rents across
momentum all commercial grades in 2020.
The Premium market is experiencing critically low levels of available Tenant demand remains diverse
space, with the vacancy rate tightening from 10.4 per cent to 3.2 per The leasing market continues to follow a recovery path, with
cent over the past year on the back of circa 24,146sqm of annual net the mining and resources sector, the Commonwealth and State
absorption in 2019 (equivalent to over 7 per cent of the Premium Governments and flex-space providers driving healthy levels of
stock). The Premium stock is forecast to hold steady until mid-2022 demand in 2019. The lease agreement signed by Rio Tinto to occupy
when the only Premium development under construction at 80 Ann circa 20,000sqm at Midtown Centre by mid-2021 was the largest
Street reaches practical completion. As nearly 80 per cent of the Net take up in 2019, followed by a number of flexi-space operators taking
Lettable Area (NLA) within this development is pre-committed, we do up primarily Premium office within the Golden Triangle.
not expect to see a correction to the undersupply over the next three
The Queensland State Government is considering a lease over
years.
24,400sqm across 18 floors at 300 George Street. This deal is
This undersupply of Premium stock and the estimated $10 billion expected to be one of the largest agreed in 2020 along with new
infrastructure investment injected directly into the CBD and pre-commitments on mooted Premium developments. These mooted
surrounding areas have played a pivotal role in improving the developments are attracting significant interest from various banking
confidence of property developers. We have seen a surge on mooted and finance operators with lease expiry dates within the next two to
Premium projects transitioning to planning stage, with expectations to three years.
deliver circa 188,000sqm of office space over the medium term.
The tenant profile remains diverse, with the government, the finance
Colliers International understands that the $650 million development and insurance sector and legal services providers leasing about 55
at 360 Queen Street, proposing to add approximately 40,000sqm of per cent of the occupied CBD market stock. In contrast to the myth
Premium space, has reached development approval stage. The two that mining and resources tenants account for a large portion of
towers at the Waterfront Brisbane development (potentially adding office space in Brisbane CBD, we have estimated that it leases less
approximately 120,000sqm in two stages) and the GPT project at 135 than 10 per cent of the occupied stock, with expectations of a small
Eagle Street (proposing to add 28,000sqm) are currently preparing increase this year when BHP and New Hope occupy an additional
documentation to submit a development application. As developers 8,000sqm of A grade space within the Golden Triangle.
continue to proactively manage development risk, we expect that the
commencement of these projects will remain subject to achieving the
required pre-commitment usually in the range of 50-60 per cent of
the proposed NLA.
Our estimates indicate that the completion of these projects will
increase the share of premium stock from 15 per cent to over 20
per cent. The increase in premium stock levels will offer more
opportunities for multinational companies to consider Brisbane as a
potential location to headquarter their operations in Australia.
Largest prime rental growth in over a decade
Increased demand for office space has supported consistent gross
face rental growth across all building grades in 2019. Average
Premium gross face rents increased by 5.8 per cent in 2019, to an
11-year high of $875/sqm p.a. High-rise floors recorded the largest
increase during the year, particularly in buildings like 111 Eagle Street,
123 Eagle Street, 480 Queen Street (if there were to be any vacancy)
and 71 Eagle Street. Average A grade gross face rents increased by
3.8 per cent in 2019, to a record high of $747/sqm p.a. Average B
grade gross face rents increased 4.9 per cent over the past year, to
the highest gross face rent in history of $624/sqm p.a.
Incentives across all grades have commenced a moderate correction
cycle. Colliers International has recently witnessed some Prime
leasing deals negotiating incentives of 35 per cent compared to
incentives of up to 40 per cent negotiated earlier in 2019. Despite
the elevated incentives offered to new tenants, the increase of net 400 George Street, Brisbane
Leasing on behalf of Cromwell
13CBD OFFICE | Research & Forecast Report | H1 2020
ADELAIDE
OVERVIEW
Market Indicators - Dec 2019 Active Adelaide office market investors are primarily offshore,
institutional and private interstate investors (notably Melbourne
based). Over $344 million of assets transacted during the fourth
AVERAGE NET FACE RENTS ($/m2)
quarter of 2019. Total sales volumes exceeded $756 million, following
Prime Secondary
a record year of investment in 2018, when over $900 million were
L H L H
transacted.
$313 $468 $276 $376
The controversial land tax changes have finally passed parliament,
but not without a serious hit to business confidence resulting in
AVERAGE YIELDS
Prime Secondary many private investors sitting on the sidelines. With changes passed
and a certain way forward in this regard, we expect private investors
L H L H
to be more active in 2020.
5.50% 7.75% 6.96% 7.46%
Since the beginning of 2017, 13 of the 30 A grade investment buildings
AVERAGE CAPITAL VALUE ($/m2) in the CBD changed hands. The lack of investment grade stock on the
Prime Secondary market could slow sales volumes in Adelaide - not a lack of demand.
L H L H
$5,779 $6,293 $3,966 $5,040 Two new buildings have completed in the second half of 2019.
The GPO Exchange completed in November with tenants BHP and
Attorney Generals Department (AGD) relocating in Q3. 43 Franklin
JAN-2020 JAN-2021 (F)
Street, also completed in Q3, and is owner occupied by Uniting
Communities, with the remainder leased to Finlaysons (2,500 sqm).
NET SUPPLY
18,732m2 22,655m2
108 Wakefield Street (13,000sqm) has commenced construction with
no pre-commitment and is expected to complete in the second half of
2020. Mooted developments include 62 Currie Street, Festival Square,
200 North Terrace, 120 Frome Street and 83 Pirie Street.
TOTAL MARKET
VACANCY RATE
14.4%
14.0%
Adelaide CBD Office Supply Adelaide CBD Office Sales by Purchaser Origin
$1,000
New Dev Full Refurb Partial Refurb Backfill Domestic Offshore
45,000 $900
2019 2020 2021 2023+
40,000
$800
35,000
30,000 $700
25,000
Area (sqm)
$ Millions
$600
20,000
15,000 $500
10,000
$400
5,000
$300
0
81 Flinders Street
80 Currie Street
45 Pirie Street
120 Frome Street
42-56 Franklin Street
GPO Tower
43 Franklin Street
91 King William Street
74 Pirie Street
200 North Terrace
Festival Plaza
Lot 14
Lot 14
Lot 14
Lot 14
Lot 14
83 Pirie Street
50 Grenfell
62 Currie Street
185 Pirie Street
108 Wakefield Street
Conservatory
82-98 Wakefield Street
$200
$100
$0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Colliers Edge Source: Colliers Edge
14CBD OFFICE | Research & Forecast Report | H1 2020
By Kate Gray Office Market Outlook
Director | Research
kate.gray@colliers.com We expect demand for office leasing to continue improving, at the
expense of the Fringe and metro markets. Vacancy is expected to
Total sales volumes for 2019 were $756 million, following a record tighten by late 2022 but increase again in 2023 due to new supply
year of investment in 2018 - transacting over $900 million. Major and backfill created from tenants relocating to these Next Generation
sales in the quarter include 151 Pirie Street ($92.5 million) bought by buildings. Buildings expecting vacancy up to 2023 need to consider
Blackrock, 100 Waymouth St ($85 million) bought by Real I.S. and 55 capital works to retain and attract tenants. We expect rents and
Currie Street ($148.25 million) bought by ARA. incentives in existing buildings to favour proactive landlords in the
Since the beginning of 2017, 13 of the 30 A grade investment lead up to late 2022. New supply in 2023 will see the balance swing
buildings in the CBD changed hands. Rather than indicating a lack towards tenants in existing buildings until the high vacancy, due to
of demand, a shortage of investment grade stock coming onto the backfill, is absorbed.
market could slow sales volumes going forward. Yields tightened
marginally in the year, with A grade office assets tightening 28
basis points and B grade office assets firming by 32 basis points.
The current yield spread to the Sydney market is between 150
basis points to 190 basis points. There is further scope for yield
compression on the East Coast , applying additional pressure on
yields in the Adelaide market.
Leasing Market
Total market vacancy has increased to 14.0 per cent with net
absorption of -110 sqm. New Generation stock vacancy has fallen to
3.5 per cent with just over 10,000sqm available for lease. Vacancy
for Old Generation space has however increased to 20.6 per cent.
This brings total A Grade vacancy to 13.8 per cent.
Backfill for the AGD tenancy at 45 Pire Street and BHP at 55
Grenfell Street have come to the market, which has significantly
increased Old Generation vacancy. Both tenants relocated to the new
GPO Exchange.
Uniting Communities at 43 Franklin Street (6,000sqm) completed
in Q3 2019, with Uniting Communities occupying 3,600sqm and
Finlaysons leasing the remainder in July 2020. 108 Wakefield Street 1 King William Street, Adelaide
Managed on behalf of 1 KW Adelaide Pty Ltd.
has commenced construction (13,000sqm) with no pre-committed
tenant and an expected completion date of Q3 2020.
Gross face rental growth has remained subdued across the
consolidated A grade sector with only 0.6 per cent growth over
the year. As mentioned above, New Generation office assets have
seen annual growth in average gross face rents of 2.1 per cent and
incentives between 30-35 per cent. Rental growth (gross face) for B
grade assets was flat, whilst incentives have remained high at 34-39
per cent.
Mooted projects include 62 Currie Street, Festival Square, 200
North Terrace, 120 Frome Street and 83 Pirie Street. We anticipate
62 Currie Street (9,000sqm) to commence this year with QT Hotels
committed to the hotel component and 1,600sqm of the office space
pre-let to Work Hub and 500sqm to Hames Sharley. We expect the
completion of two buildings by late 2022 through to mid-2023, with
one meeting DHS’ requirement for 29,000sqm and the second being
led by public and private sector tenant demand.
100 Waymouth Street, Adelaide
Leasing on behalf of Real I.S.
15CBD OFFICE | Research & Forecast Report | H1 2020
CANBERRA
OVERVIEW
Market Indicators - Dec 2019 Canberra finished 2019 with a surge in sales activity that had been
building for the previous two quarters. Local economic conditions
AVERAGE NET FACE RENTS ($/m2) have been supported by population and employment growth and low
Prime Secondary unemployment
L H L H
$400 $290 Demand for secondary stock is lower than prime, with many
assets now being repositioned to take advantage of current tenant
AVERAGE YIELDS requirements and uplifts to rents.
Prime Secondary
L H L H
Positive economic conditions and office demand outstripping supply has
5.25% 6.00% 7.00% 7.50% resulted in positive rental growth for A grade gross face rents.
AVERAGE CAPITAL VALUE ($/m2)
Prime Secondary The completion of the Light Rail Stage 1 will enhance activity and
L H L H connectivity in the city and continued support of Canberra’s growing
$7,111 $4,000 population.
JAN-2020 JAN-2021 (F)
NET SUPPLY
10,185m2 31,550m2
TOTAL MARKET
VACANCY RATE
12.0%
11.9%
Canberra CBD Gross Face Rents Canberra CBD Vacancy Rate and Net Absorption
$600 140,000 18%
Forecast Forecast
120,000 16%
$500
100,000 14%
$400
$/sqm p.a.
Net Absorption (sqm)
80,000 12%
$300 60,000 10%
40,000 8%
$200
20,000 6%
$100
0 4%
$- -20,000 2%
Dec-20
Dec-21
Dec-22
Dec-10
Dec-11
Dec-12
Dec-18
Dec-19
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-09
Dec-08
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
-40,000 0%
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-20
Jan-21
Jan-22
A Grade B Grade
Net absorption Vacancy Rate
Source: Colliers Edge Source: Colliers Edge, PCA OMR Jan 2020
16CBD OFFICE | Research & Forecast Report | H1 2020
By Sarah Walker as tenants look for buildings with improved spatial elements, flexible
Manager | Research work environments and up-to-date technology.
sarah.walker@colliers.com
Despite the rising vacancy rate, we believe that Canberra will
Canberra’s transactional market reached a milestone with the sale continue to be a sought-after market, supported by its strong labour
of the award winning environmentally conscious ‘Nishi Building’ market and sustained population growth. Continued government
to Centuria Property Group for $255.75 million, with a 7.9 year expansion has generated employment demand for administrative and
WALE. Located at 2 Phillip Law Street in the New Acton precinct, technology-based work, helping Canberra’s unemployment rate to
the two mixed-use towers, originally built in 2012/13, comprise drop to 3.1%, which is 200 basis points below the national average.
retail, commercial offices, apartments and a hotel. The scheme Moreover, Canberra’s overall population growth of 20% over the
was designed by Molonglo Group who collaborated with over sixty past ten years, Canberra’s annual growth was above the national
architects. The transaction is another example for sustained yield average between March 2015 to March 2019 which outperformed
compression in Canberra. with the sale representing a passing yield the national average and its population is forecast to reach 500,000
of 5.30 per cent and capital value rate of $9,330/sqm. It was the by 2030. In anticipation of the increasing population, the first stage
largest transaction by value in 2019 and one of various assets being of the new light rail was completed in 2019, connecting Gungahlin,
divested by Molonglo Group. through Dickson to the city.
Colliers International expect another year of several single asset November 2019 marked the completion of the new development
office transactions (greater than $200 million) fuelled by strong Civic Quarter - Stage 1, although several tenants moved into the
interest from both domestic and offshore investors. Anecdotal 15,984sqm A grade office tower, some space is still available. The
evidence suggests that there has been increasing interest from building has sustainable features essential to new buildings such as
Singaporean, South Korean and Japanese investors. One of the draw rooftop solar panels, water retention systems, high efficiency fixtures
cards to Canberra’s office market from an international investment and electric vehicle charging points.
perspective is its competitive price point.
Canberra’s vacancy rate remained steady at 12% in January 2020,
according to The Property Council of Australia (PCA). Although
this is an improvement from a year ago (12.5%), the vacancy rate
remains slightly above its ten-year average of 11.3%. Secondary
assets experienced more subdued levels of demand and as a
result are hampered by a lack of rental growth and escalating
costs, resulting in the potential to reposition assets to meet tenants’
requirements. Demand for A grade Canberra assets remains strong
40 Cameron Avenue, Belconnen Nishi: 2 Phillip Law Street, Canberra
Leased on behalf of CorVal Managed on behalf of Molonglo Group
17CBD OFFICE | Research & Forecast Report | H1 2020
PERTH
OVERVIEW
Market Indicators - Dec 2019 Over 2019, Perth experienced the highest net absorption since 2012.
Perth CBD also led the major Australia office markets in term of net
AVERAGE NET FACE RENTS ($/m2) absorption during 2019, with 48,661sqm having been absorbed.
Prime Secondary
L H L H
$525 $775 $350 $410 Absorption is also putting a dent in the secondary office market,
with vacant space slowly filling up following five years of vacancy
expansion. This has been assisted by landlords offering competitive
AVERAGE YIELDS
Prime Secondary terms and undertaking major refurbishments to freshen dated
assets.
L H L H
5.65% 6.90% 6.75% 7.25%
Major new supply will likely be limited to one building over the next
AVERAGE CAPITAL VALUE ($/m2) two years. This should further assist vacant space absorption and
Prime Secondary potentially assist with upward pressure on effective prime grade rents.
L H L H
$8,015 $13,136 $5,000 $5,857
Major refurbishments will continue as the competitiveness of new
builds increase alongside firming market conditions.
JAN-2020 JAN-2021 (F)
NET SUPPLY
Accelerating population growth and a projected improvement in
40,308m 2 investment spending is likely to drive demand for Perth office assets
-929m2 in 2020. But the risk of the novel coronavirus’s contagious impact
on the economy could weaken domestic and trade partner demand
growth over the short-term to medium term.
TOTAL MARKET
VACANCY RATE
17.6%
16.6%
Perth CBD Supply, Net Absorption & Vacancy Rate Perth CBD Average Premium Grade Yields
160,000 32%
Forecast 8.5%
140,000 28%
120,000 24%
8.0%
Supply & Net Absorption (sqm)
100,000 20% 7.5%
80,000 17.6% 16%
7.0%
Vacancy Rate
60,000 12%
40,000 8%
6.5%
20,000 4% 6.0%
0 0%
5.5%
-20,000 -4%
-40,000 -8% 5.0%
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-10
Dec-11
Dec-12
Jun-16
Jun-19
Jun-11
Jun-17
Jun-18
Jun-12
Jun-13
Jun-14
Jun-15
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jul-20
Jul-21
Jul-22
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-20
Jan-21
Jan-22
Jan-23
Total Supply 6 mth Net Absorption (sqm) Total Vacancy Rate (%)
Source: Colliers Edge, PCA OMR Jan 2020 Source: Colliers Edge
18CBD OFFICE | Research & Forecast Report | H1 2020
By Quyen Quach More scope for effective rental growth
Associate Director | Research
quyen.quach@colliers.com Further office vacancy improvement has delivered modest
rental growth in prime assets over the past year. Large premium
Strong net absorption driven by expansion and availability remains relatively low, but high vacancy and competitive
suburban tenant migration opportunities across other grades have impeded stronger rental
The Perth CBD has seen further tightening in the vacancy rate over growth.
the second half of 2019, falling to 17.6 percent as of January 2020 Colliers International expects further moderation in vacancy over
according to the Property Council of Australia. This was driven by the next year and there is a good chance that prime grade effective
the strongest net absorption Perth has seen since 2012, elevating rents will continue to experience some upward pressure. However,
the Perth CBD to the highest net absorber of office space across the as noted earlier, the viability of new developments will be assisted
eight major Australian CBD office markets. by further rental growth and the continued reduction in average
A combination of improving exploration and forward private capital incentive levels. This may impact on the pace of face rental and
investment expectations has resulted in a recovery of CBD office incentives recovery over the medium term.
space demand. This improvement in demand is filtering through to Capital transactions and yields
the secondary grade market, as availability of large contiguous space
During 2019, Colliers recorded 14 major (+$5m) transactions, totalling
in the prime market contracts.
approximately $715 million. This was down from 24 transactions that
Prime vacancy shrunk to 13.2 percent, down from 14.8 percent in equated to approximately $1.1 billion in 2018. The improving vacancy
July 2019. Secondary grade vacancy is on a downward trajectory, and rental growth prospects have continued to pique investor interest
but has increased marginally over the second half of 2019 to a rate in Perth office assets.
of 25.1 percent, compared to 24.4 percent in July 2019. The higher
Yield compression was evident in 2019, and we expect the yield
secondary grade vacancy was predominantly driven by a rise in C
environment to remain tight, if not continuing to tighten over the
grade vacancy, as B grade space sustained positive net absorption
course of 2020. Numerous macro factors point to a sustained
over the past 18 months; confirming the continued flight to quality.
appetite for Perth’s relatively higher yielding office assets.
The largest contributors to the decline in headline vacancy came
from A and Premium grade space, absorbing 17,005sqm and
15,427sqm, respectively. Tenants also absorbed 5,448sqm of
available B grade space.
Lack of supply to continue delivering lower vacancy
rates over next three years
No major new builds will be delivered to Perth’s CBD market in
2020, but there is currently 94,848sqm of space under construction.
Of this total, 16,113sqm is refurbishment activity, with the remainder
being new builds; most of which is expected to be delivered in
2022/23.
Brookfield and Invesco began work on Chevron’s new headquarters
‘One The Esplanade’, which we anticipate will be completed in 2023.
In addition, there are some 195,000sqm of proposed projects that
could break ground over the next five years should adequate pre-
commitments be secured to anchor them.
Colliers estimates there is in excess of 300,000sqm of pending
initial lease-term expiries over the next five years that could trigger
sufficient pre-commitments to enable the commencement of a major
new project.
There is the potential that sustained downward movement in
Perth’s CBD vacancy rate will assist the competitiveness of new
build projects, allowing developers to secure pre-commitment and
deliver additional prime grade space to the market over the next five
years. We expect this will keep Perth office landlords on their toes,
and underpin additional refurbishment activity of tired assets in the
medium term.
197 St Georges Terrace, Perth
Managed on behalf of GDI Property Group
19CBD OFFICE | Research & Forecast Report | H1 2020
AUCKLAND
OVERVIEW
Market Indicators - Dec 2019 Auckland CBD’s current 4.7% office vacancy rate is at another record
low. There is now less than 67,000sqm of office space available
AVERAGE NET FACE RENTS ($/sqm) across the CBD.
Prime Secondary
L H L H Occupiers are considering all qualities of space given the constraints.
$422 $541 $255 $325 The prime vacancy rate is at 2.5% and the secondary vacancy rate is
at 6.3%, which is a record low.
AVERAGE YIELDS
Prime Secondary
The long-awaited completion of Precinct Properties’ Commercial Bay
L H L H tower of 39,000sqm is expected to complete in the first half of 2020.
5.30% 6.00% 6.20% 6.70%
AVERAGE CAPITAL VALUE ($/sqm) The development pipeline is increasing as tight leasing conditions
Prime Secondary increase development feasibility. There is now 86,500sqm of space
L H L H currently under construction. There are also various proposed
office developments with no confirmed timelines and tenant pre-
$7,241 $10,383 $3,812 $5,371
commitment yet. Major tenants in existing buildings with expiries in
2023 to 2025 are being chased.
DEC-2019 DEC-2020 (F)
NET SUPPLY Higher rents, low interest rates and a sizeable weight of money
42,893m 2 from private, listed, offshore and syndication companies are driving
-9,153m 2 investment yields lower. This is expected to continue during 2020.
TOTAL MARKET
VACANCY RATE
6.7%
4.7%
Auckland CBD Office Yields Auckland CBD Office Vacancy Rate
25%
12%
Forecast
11% Forecast
20%
10%
Office Yields
Office Vacancy Rate
9%
15%
8%
7% 10%
6%
5%
5%
4%
0%
Dec-00
Dec-02
Dec-20
Dec-04
Dec-06
Dec-08
Dec-05
Dec-09
Dec-22
Dec-03
Dec-24
Dec-23
Dec-96
Dec-07
Dec-98
Dec-95
Dec-99
Dec-97
Dec-01
Dec-10
Dec-12
Dec-21
Dec-14
Dec-16
Dec-18
Dec-15
Dec-19
Dec-13
Dec-17
Dec-11
Dec-00
Dec-02
Dec-20
Dec-04
Dec-06
Dec-08
Dec-05
Dec-09
Dec-22
Dec-03
Dec-24
Dec-96
Dec-07
Dec-23
Dec-98
Dec-95
Dec-99
Dec-97
Dec-01
Dec-10
Dec-12
Dec-21
Dec-14
Dec-16
Dec-18
Dec-15
Dec-19
Dec-13
Dec-17
Dec-11
AKL CBD Prime AKL CBD Secondary
AKL CBD Office Prime AKL CBD Office Secondary AKL CBD Overall
Source: Colliers International Research Source: Colliers International Research
Note: Low and high indicators are based on averages across multiple precincts and do not represent the minimum or maximum rates being achieved.
20CBD OFFICE | Research & Forecast Report | H1 2020
By Chris Dibble Looking ahead, we forecast net face rents to increase by around 5%
Director | Research and Communications over the next year. Inflation is also starting to rise which could boost
chris.dibble@colliers.com
some rents further than recently experienced. Inflation is currently at
Record low vacancy again, but not for long 1.9%, the second highest annual rate since September 2011.
The Auckland CBD office vacancy rate hit another record low at our Positive investment conditions to continue
latest occupier survey in December. Across the CBD there is now Investors remain confident and are focussed on economic and
less than 67,000sqm of vacant office space for tenants to consider. property drivers, the ability to increase cashflow through negotiations
Much of the space is fragmented across the city, leaving limited and/or asset repositioning, lower interest costs and pent-up
choice for tenants that currently need to relocate or expand. purchaser demand.
While prime space is in high demand, the 16,000sqm of higher The rejection of a more comprehensive capital gains tax in early
quality space currently available has resulted in greater enquiry for 2019 was also a key motivator for investors. Low interest rates
secondary quality space. This has shifted the secondary vacancy rate globally and the hunt for higher returns have delivered more active
to a record low 6.3% or just 50,000sqm of space. purchasers in the Auckland CBD office sector. This adds extra depth
to our transactional market which has seen an influx of enquiry from
However, we are likely near the bottom of the current vacancy rate
private, listed, offshore and syndication companies lately.
cycle with a number of new developments due to complete over
the next couple of years. This will bring new options for tenants, Overall, the outlook for office investment activity remains solid,
primarily for the space left behind by relocating tenants. Given the supported by our net positive survey respondents in the latest
space shortages, even tenants with lease expiries well into the future Colliers International Investor Confidence Survey. A net balance of
are considering their options. 54% of respondents (optimists minus pessimists) expected Auckland
More developments on the horizon office investment conditions to improve over the next 12 months.
The long-awaited completion of Precinct Properties’ Commercial
Bay tower of 39,000sqm is expected in the first half of 2020. This
will see a number of tenants throughout the city move to the new
premium office tower with naming rights to PwC.
There is currently 86,500sqm of space under construction across
five buildings, and pre-commitment rates are at approximately 66%
and rising. We expect that the completion of the buildings under
construction over the next couple of years will push the current
overall vacancy rate from 4.7% to 7.7% in June-21, when the last
Premium grade building is expected to complete. Steady economic
growth, solid employment, positive net absorption, and residential and
hotel conversions are limiting vacancy rates from rising further.
Private and listed company developers are considering their options
in this low vacancy, strong occupier demand environment. There
are a number of proposed office developments with no confirmed
timelines and tenant pre-commitment yet. The total floor space of
these proposed premises is 133,000sqm across nine projects. Major
tenants in existing buildings with expiries in 2023 to 2025 are being
chased to meet pre-commitment thresholds.
Rents and incentives to increase
The rise in tenant options has led to a rise in incentives. However,
not all landlords are providing a significant variation from existing
rates. We currently estimate average prime incentives at around
10.7% per year of lease term, up slightly from last year. We also
forecast incentives to rise slightly further as more stock completes
over the next 12 months.
While incentives are rising, the strong demand environment has led
to average prime and secondary face rents rising as well. This is
resulting in stable net effective rents over the past year in the prime
sector. The completion of significantly higher quality office premises
155 Fanshawe Street, Auckland
in the next couple of years will lift average net face rents. Sold on behalf of Mansons TCLM
21You can also read
