CONTIGUOUS OFFICE SPACE a View of the Available Contiguous Office Space in Sydney, Melbourne and REPORT Brisbane Cbds
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Accelerating success. CONTIGUOUS OFFICE SPACE A view of the available contiguous office space in Sydney, Melbourne and REPORT Brisbane CBDs. Contiguous office space options to be limited over the next few years. Sydney, Melbourne and Brisbane CBDs are experiencing rental growth and an under-supply of contiguous office space. Contiguous office space across the eastern seaboard CBDs is currently in short supply. Rents continue to grow for contiguous office space in particular, which is creating a need for tenants to consider their office requirement sooner than they may have needed to do only one year ago. Our Contiguous Office Space Report, quantifies office space availability between now and the end of 2021 that totals more than 2,000sqm and is over two or more adjoining floors. The report covers the CBD markets of Sydney, Melbourne and Brisbane and its purpose is to provide an outlook for owners and occupiers on available contiguous options. In the current climate of low vacancy, particularly in Sydney and Melbourne, contiguous office space can be a competitive advantage for owners. Given the strength in full time jobs growth and white-collar employment growth over the past two years, a large number of tenants are actively looking for buildings to accommodate their need to consolidate operations or relocate to a new and improved workspace to act as a retention and attraction strategy for talent. This has created an environment where contiguous options in particular have been in strong demand, and supply has dwindled over this time. 2 Colliers International | Contiguous Office Space Report The key findings of the report are summarised below: Sydney Melbourne Brisbane Number of contiguous options available 37 41 38 Number of assets with available contiguous 27 29 35 office space SQM of contiguous options available 368,769 338,036 234,170 Number of options over 10,000sqm 13 11 3 SQM of options over 10,000sqm 252,030 201,979 101,600 % by sqm offered in Premium assets 25% 35% 2% % by sqm offered in A grade assets 70% 50% 75% Immediate availability by sqm 26,476 13,300 79,551 Current contiguous availability as a % of total 11% 8% 24% vacancy 2019 availability by sqm 40,891 47,150 93,653 2020 availability by sqm 165,548 139,856 60,966 2021 availability by sqm 135,854 137,730 0 Number of new development options 8 9 3 SQM within new development options 109,486 76,125 97,074 *Options refers to the number of contiguous office space options, not the number of assets offering contiguous office space, i.e. one asset may have two contiguous space options. *Data has been collected from 2018 to the end of 2021 in the CBD locations of Sydney, Melbourne and Brisbane. Source: Colliers International, PCA OMR July 2018 3 contiguous office space options % as a percentage of total vacancy 11 in the Sydney CBD. SYDNEY CBD * PCA OMR July 2018 increase in backfill refurbishment hitting the market, mainly in the Smart facts: midtown precinct. However, in terms of options of 10,000sqm 1. There will be no available contiguous space and above, these are limited to only seven assets in 2020 and five options over 10,000sqm until 2020. assets in 2021. 2. Only three new developments will offer contiguous space over 10,000sqm in the next In 2020, the large backfill options of 10,000sqm or more are few years. located within seven assets and in 2021 there are only five assets 3. 70% of all the available contiguous space offering such space. Tenants looking to consolidate operations and options have asking rents over $1,000/sqm Net. requiring office space over 10,000sqm have limited options, and due to this under-supply, they can expect further rental pressure. There is limited supply of contiguous office space in new The Sydney CBD market will offer a limited number of contiguous developments within Sydney CBD over the next few years; space options over the next few years. In total, there are 27 assets with only three developments offering contiguous space over within the CBD that will offer 368,769sqm of contiguous office 10,000sqm; 10 Carrington Street, 210 George Street and Quay space up until the end of 2021. Quarter Tower. Up until 2020, there are no options within the CBD core and Beyond 2021, the new supply cycle will start to provide more midtown that can provide more than 10,000sqm of contiguous options, including Circular Quay Tower, the Sydney Metro Over space. As we enter 2020 and 2021 we will start to see an Station Development (OSD) sites and Barangaroo Central, which is expected to complete 2024+. Contiguous Space Options | Sydney CBD 35,000 Immediate 2019 2020 2021 30,000 25,000 20,000 15,000 10,000 SQM SQM of Available Contiguous Space 5,000 - Source: Colliers International 4 Colliers International | Contiguous Office Space Report For tenants that are looking to position themselves in a Premium Premium Grade Assets grade asset over the next few years, options are limited. In total, Total Contiguous Space Available there are only six assets offering Premium grade contiguous Immediate 2019 2020 2021 space. *60 Martin Place 12,180 Of the 27 assets identified, if a major occupier was looking for an 85 Castlereagh Street 4,017 option that could also provide signage they would have a choice 201 Sussex Street 5,884 from around 11 options including 20 Bond Street, 60 Martin Place, 225 George Street 11,080 1 Oxford Street, 320 Pitt Street, 477 Pitt Street, 275 George *Quay Quarter Tower 47,056 *Tower 3, International Street, 225 George Street, 55 Market Street, 570 George Street, 11,219 Towers Barangaroo 231 Elizabeth Street and 2 Market Street. Out of these options, *Quay Quarter Tower has two contiguous options available, 60 Martin Place has two options three are available in 2019, five available in 2020 and two in 2021. available and Tower 3 International Towers Barangaroo has two contiguous options available. The limited supply in the Sydney CBD, coupled with continuing 5,000-9,999sqm Options withdrawal activity as buildings are converted or refurbished, means we expect rents to continue to rise through to 2020, Immediate 2019 2020 2021 which will impact what options tenants can afford and where 60 Castlereagh Street 5,366 they can locate themselves. Based on an analysis of data, it is 60 Martin Place 8,300 our understanding that around 70 per cent of the assets with 201 Sussex Street 5,884 231 Elizabeth Street contiguous space over the next four years have average asking 5,000 (sublease) rents more than $1,000/sqm net. 264-278 George Street 5,220 275 George Street 6,500 347 Kent Street 6,557 Map of all contiguous assets across Sydney CBD 477 Pitt Street 8,500 Tower 3, International 6,657 Towers Barangaroo 1 Oxford Street 5,526 (levels 1-4) 1 Oxford Street 7,000 (levels 11-15) 10,000-19,999sqm Options Immediate 2019 2020 2021 44 Martin Place 10,000 55 Market Street 18,008 210 George Street 15,000 225 George Street 11,080 255 George Street 19,607 388 George Street 12,472 570 George Street 18,500 20,000sqm+ Options Immediate 2019 2020 2021 2 Market Street 22,307 10 Carrington Street 25,000 231 Elizabeth Street 23,000 320 Pitt Street 30,000 Quay Quarter Tower 21,035 (levels 36-43) Quay Quarter Tower 26,021 Source: Colliers International Tableau Workbook (levels 4-16) 5 contiguous office space options % as a percentage of total vacancy 8 in the Melbourne CBD. MELBOURNE CBD * PCA OMR July 2018 with only 338,036sqm of available space over the next few years. Smart facts: As we are assessing this space in today’s market, we expect that 1. There is no available contiguous office space much of this available contiguous space will lease within the next over 10,000sqm until 2020. 12 months and thus, options will tighten further. 2. New development pipeline provides limited Given the strong demand conditions and tight vacancy rate, we options. should continue to see good face rental growth, particularly in 3. Some tenants may be ‘priced out’ of the CBD prime grade buildings. Some tenants may find themselves ‘priced market and will need to consider alternative out’ of the market and will need to consider alternative options options. within Melbourne’s fringe markets. Contiguous options on Collins Street are forecast to be limited with availability in assets such as Rialto at 525 Collins Street with four contiguous options available, Vacancy in the Melbourne CBD market is projected to be very tight 530 Collins Street with two contiguous options, 101 Collins Street over the next few years. The Property Council of Australia (PCA) in 2021 offering 3,500sqm over three levels, 80 Collins North July 2018 vacancy rate for the CBD is only 3.6%, which is the Tower in 2019 offering just over 2,000sqm and the 80 Collins lowest it has been since 2008 when it dipped to 3.0%. South Tower in 2020 offering various contiguous options from two floors of 1,600sqm each up to nine floors for over 11,000sqm When assessing the available contiguous space over 2,000sqm in of contiguous space. Again, we anticipate that the majority of this the Melbourne CBD we have found there are a total of 29 assets space will be leased by early to mid-2019. Contiguous Space Options | Melbourne CBD 35,000 Immediate 2019 2020 2021 30,000 25,000 20,000 15,000 10,000 5,000 - Source: Colliers International 6 Colliers International | Contiguous Office Space Report The new development pipeline is also forecast to provide limited Premium Grade Assets options.