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Office vacancy rates on the rise as pandemic takes its toll

Office vacancy rates on the rise as pandemic takes its toll

Vacancy rates in Australia’s city skyscrapers have close to doubled as they sit devoid of office workers, and things could get worse as experts warn normal conditions may not return for another two years.

The data from the latest Property Council of Australia’s Office Market Report, for the six months to the end of July, reveals the damage wreaked by the global pandemic with Sydney’s vacancy rate almost doubling from 3.9 per cent to 5.6 per cent.

Meanwhile, Melbourne’s CBD vacancy rate, which was also impacted by a 4.6 per cent increase in additional office supply, jumped from 3.2 per cent to 5.9 per cent.

But major landlords, such as GPT and Dexus Property, say the death of the office has been exaggerated. The companies predict that people will opt for a more flexible working week once COVID-19 is contained, with some days spent in the office.

Mark Curtain, head of office leasing, Pacific at CBRE Asia Pacific said leasing activity across Australia’s major east coast office markets has taken a hit from COVID-19 and a return to normal trading conditions looks unlikely until late 2021-2022.

“Although key market metrics have not moved dramatically, being net absorption, vacancy and effective rents, we anticipate more significant statistical change will flow through in early 2021 as the full economic impacts of the crisis are realised,” he said.

Of more concern to landlords is the rising level of sublease space, where companies opt for 10 floors but now only need five, which now sits at the highest level in a decade and is adding to the overall vacancy levels across all cities.

Telstra is one company that has given back floors to its Sydney landlord, as the group has no use for the extra space. The telco has space at 400 George Street, Sydney where it gave back three floors for sublease in June and has since put up another seven (levels 18-20 and 23-29), equal to about 12,100 square metres.

Michael Cook, group executive Investa Property said office occupancy is at unprecedented low levels, adding the underlying potential subleasing market “makes any read [of the data] impossible”.

“Unfortunately, second waves, lockdowns and the fear of public transport and community transmission are weighing heavily on all Australian office markets,” Mr Cook said.

“While we need to be focussed on how we adapt to the changes dealt by a post COVID-19 environment, at present it’s about just getting through this crisis. Our challenges are enormous but are in many ways dwarfed by the challenges of our tenants.”

Of the latest data, Property Council of Australia chief executive Ken Morrison said, while office vacancies increased over the period, aggregate tenant demand was flat across CBD markets, with vacancy increases driven by increases in supply.

“Sublease vacancy in the capital cities, a key metric in falling markets, increased by 0.2 per cent, but this is still at modest levels compared to previous downturns,” Mr Morrison said.

“The reactivation of our CBDs and office buildings will be an important element of our economic recovery in coming months, and something that all levels of government will need to consider carefully.”

Mark Rasmussen, state director Victoria at Savills Australia, said the southern capital is set to overtake Sydney as Australia’s largest CBD office market.

“Major lease transactions continue albeit in lower volumes. The delivery of significant new office supply and issues relating to COVID-19 will continue to push up vacancy rates and lease incentives,” Mr Rasmussen said.

But he added that increased sublease opportunities are “providing attractive options for tenants”.





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Barwon secures Princess Alexandra Hospital car park

Barwon secures Princess Alexandra Hospital car park

Barwon Investment Partners has snapped up a multi-level car park and medical centre on a site with significant development upside opposite Princess Alexandra Hospital.

The Woolloongabba asset at 250 Ipswich Road is setting the healthcare focused fund manager back around $95 million, reflecting a circa four per cent net passing yield.

The property contains an eight level, 773-bay garage attached to a two floor wellness centre with 21 tenancies, anchored to Gabba Dermatology, Brisbane Cardiology and Allied Health; the Weighted Average Lease Expiry is nearly seven years.

A pedestrian overpass connects the building to the Princess Alexandra Hospital, also a major teaching campus, employing 6810.

The 5106 sqm block has significant upside – up to 15 storeys based on its zoning, according to JLL’s Seb Turnbull, Elliott O’Shea and Simon Quinn, who marketed the asset with a Blight Rayner scheme.

BIP invests again

Established in 2006, BIP holds a property portfolio worth $2.3 billion.

Its medical related product, much held in a Healthcare Property fund, is priced at about $1.4b as at March, 2022.

Seven months ago, for the trust, the manager paid Forza Capital $34.7m for a South Brisbane medical centre – not far from 250 Ipswich Rd – and two Canberra assets including Belconnen’s Ginninderra Medical & Dental Centre on nearly a hectare.

Also late last year BIP spent $75m for a 12 level St Kilda Rd office majority leased to Alfred Health.

More to come.



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Brisbane’s Office Market Greenlit for Business

Brisbane’s Office Market

Brisbane’s office market continues to shake off the pandemic doldrums with two new commercial towers approved in the CBD and fringe suburbs.

Property owner PGIM and development partner Indema’s plan for a bold adaptive reuse of a 1970s commercial building at 444 Queen Street has won approval.

The bronze 22-storey tower opposite Customs House will be stripped back to its core structure and completely remodelled with a new podium, curtain wall facade and an additional two-storey sculptural canopy.

Indema director Michael Bruderlin said they would be targeting a net zero certification for the building upon completion in the first quarter of 2024.

Bruderlin said Hutchies had been engaged in an early contractor design and construct contract to help de-risk the project and better understand the technical requirements.

The Fender Katsalidis-designed tower follows in the footsteps of another of its commercial adaptive reuse projects in Brisbane, Ashe Morgan’s Midtown, now the headquarters for Rio Tinto.

Bruderlin said retaining and repurposing the existing building is 400 per cent more environmentally friendly. Retaining the existing concrete structure provides a 70 per cent saving in embodied carbon.

The project will rejuvenate a 48-year-old building at the end of life into an A-grade commercial office asset and increase the net leasable area 40 per cent.

Bruderlin said the project would have a quicker turnaround than a normal demolish and build project and it would use clever design initiatives to increase floor plates and create a better value proposition for the asset.

PGIM purchased 444 Queen Street for $54.4 million from the Public Trustee of Queensland and Abacus Property Group in October last year.

Cornerstone has also won approval for a commercial development in the city fringe suburb of Fortitude Valley.

The Bureau Proberts-designed tower will capture the heritage brick character of the Fortitude Valley centre “borrowing from the intent of these buildings but with a stridently different and contemporary expression”, planning documents said.

“This approach is a deliberate counterpoint to the strong and solid brick structures of the immediately adjacent 47 Warner Street and McWhirters buildings.

“Brickwork or masonry is not used as a material in deference to these neighbouring buildings allowing them to become more evident and make a clear statement about the era of their inception.”

The 28-storey commercial tower at 251 Wickham Street features a stepped slanting facade fronting Warner Street, with a four-storey lobby, and an inverted podium.

There will also be a rooftop terrace, 20m pool and open-plan gym in the commercial tower, with retail offerings at the base of the building.

Brisbane’s metropolitan office market vacancy was at 16.3 per cent at the end of March and there were few transactions across the quarter, according to Colliers research.

But yields remained steady, and well above other capital cities, while incentives remained stagnant at 40 per cent.



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Developer Pitches for $130m Shop-Top Housing on Bayside

$130m Shop-Top Housing on Bayside

Brisbane’s bayside could be going up in the world with plans for $130-million highrise shop-top housing in the heart of the seaside suburb of Wynnum.

Brisbane-based developer Hambros has lodged plans for a 21-storey apartment tower on the vacant lot neighbouring the Wynnum Central Shopping Centre, after winning approval for an small extension to the retail centre late last year.

The development comprises a 6-storey retail and commercial podium, with a 275-apartment tower above, backing on to Wynnum Central Park.

Hambros has reportedly spent about $14 million on revamping the Wynnum Central Shopping Centre on Bay Terrace, as part of a $74-million plan to rejuvenate Wynnum, including cinemas.

According to planning documents lodged with the Brisbane City Council, the tower will be made up of 54 one-bedroom apartments, 148 two-bedroom apartments, and 67 three-bedroom apartments, with six penthouses, which will have private rooftop space and their own pools.

The building height is well in excess of the allowable five to eight storeys in the Wynnum Manly Neighbourhood Plan, but town planners Gateway Survey and Planning argued the plan was “outdated” and should be overhauled.

The six-storey podium would contain two levels of parking, a retail tenancy at ground level, a floor of retail, with two storeys of commercial space for office, healthcare and events space on levels 5 and 6.

Developer Pitches for Shop-Top Housing on Bayside Brisbane

▲ Shayher Group won approval for its redevelopment of Wynnum Plaza last year, which included 184 apartments across eight residential buildings.

In a statement to the council Hambros director Justin Ham said the Wynnum CBD had been left behind “with no development occurring in the last 20 years”.

“Our project is designed to put Wynnum CBD on the ‘open for business’ map,” Ham said.

“This landmark development, with a construction cost estimated at $130 million will have a huge financial and community positive impact on the Wynnum CBD and surrounding areas.

“It’s a once-in-a-lifestime opportunity to create a beautiful space overlooking the best bay in the world.”

Ham said the development would bring much-needed foot traffic to the heart of the Wynnum CBD and help bolster businesses and landowners he said were struggling to remain profitable.

Taiwanese developer Shayher Group won approval for a masterplanned retail precinct at Wynnum Plaza with plans for 184 apartments across eight residential buildings as well as boutique cinemas and increased retail space, reportedly worth more than $100 million.

Work on the Wynnum Plaza redevelopment was due to commence later this year with a completion date hedged for 2024.



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