Accelerating success. CONTIGUOUS OFFICE SPACE A view of the available contiguous office space in Sydney, Melbourne and REPORT 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 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. In 2019 there is one option being 447 Collins Street of Total Contiguous Space Available

7,049sqm over three floors, otherwise 2020 will provide more Immediate 2019 2020 2021 options, including 80 Collins Street South Tower, 130 Lonsdale *80 Collins Street South 18,171 Street, 180 Flinders Street, 477 Collins Street and Two Melbourne 101 Collins Street 3,500 Quarter. These new developments will provide over 70,000sqm 130 Lonsdale Street 20,000 of availability between them, which is around 56% of the total 447 Collins Street 7,049 available options of contiguous space in 2020. 477 Collins Street 2,400 *525 Collins Street 3,300 8,776 12,379 *530 Collins Street 7,000 3,780 From a development perspective, *600 Bourke Street 13,200 19,800 *525 Collins Street has four contiguous office space options available (one available now, two in 2019 & one in 2021), 530 Collins Street has two options available, 600 Bourke Street has three there will be minimal stock coming options available and 80 Collins Street South has three contiguous options available. through as the city doesn’t have the land supply to provide new 5,000-9,999sqm Options buildings... Immediate 2019 2020 2021 80 Collins Street North 5,400 80 Collins Street South 5,300 In terms of new development options post 2021, there is the 17-23 140 William Street 6,300 Bennetts Lane development by Perri Projects, circa 13,500sqm 180 Flinders Street 8,735 and 1000 La Trobe Street by Poly Australia, circa 39,000sqm. In 385 Bourke Street 9,300 addition, Cbus Property’s proposed development on the corner 447 Collins Street 7,049 of Bourke and Queen Streets should complete in 2023 and 525 Collins Street 5,076 offer circa 65,000sqm while Mirvac’s proposed development at 150 Lonsdale Street 5,465 383 La Trobe Street, circa 40,000sqm, is due for completion in 530 Collins Street 7,000 600 Bourke Street 6,600 2024/2025. In addition, Dexus have recently purchased 52 & 60 628 Bourke Street 6,500 Collins Street with a plan to redevelop the site. All three sites 825 Bourke Street 9,051 are subject to permits and are some of the few foreseeable new developments proposed within the Melbourne CBD grid. From an office development perspective, unless planning regulations are 10,000-14,999sqm Options changed (C270), there will be minimal opportunities for new office Immediate 2019 2020 2021 towers of any significance, given the difficulty of consolidating a large enough site that can provide a viable floorplate i.e. in excess 80 Collins Street South 11,200 525 Collins Street 12,379 of 1,500sqm. 600 Bourke Street 13,200 13,200 In terms of major backfill, in 2020 we’ll see 100 Queen Street offer 31,000sqm of contiguous backfill, 150 Lonsdale Street offer 15,000sqm and 600 Bourke Street offer 13,200sqm. Once we 15,000sqm+ Options hit 2021, there are a few more options for larger backfill options, Immediate 2019 2020 2021 however majority of this is within the South West of the CBD 100 Queen Street 31,000 grid including Rialto at 525 Collins Street offering 12,379sqm in 130 Lonsdale Street 20,000 2021, 637 Flinders Street offering 28,000sqm, 550 Bourke Street 550 Bourke Street 22,000 with 22,000sqm and the World Trade Centre with 20,000sqm 637 Flinders Street 28,000 of contiguous space. We expect the next major backfill at 500 150 Lonsdale Street 15,000 Bourke Street to come online in 2022, which will consist of Two Melbourne Quarter 16,000 around 49,000sqm. WTC 20,000

7 contiguous office space options % as a percentage of total vacancy 24 in the Brisbane CBD. BRISBANE CBD * PCA OMR July 2018

When we break it down, the market for large tenants is even Smart facts: tighter; there are only three options for contiguous space over 1. There are only three assets within the Brisbane 10,000sqm up until the end of 2021. In 2019, 300 George Street CBD that can provide more than 10,000sqm of will have 48,000sqm available, while in 2020, 260 Queen contiguous office space up to 2021. Street and Midtown Centre will offer 11,600sqm and 42,000sqm 2. Majority of contiguous office space is located respectively. Two of these aforementioned projects are new outside the Golden Triangle. developments, and only one - 260 Queen Street - is located 3. There are only two Premium grade assets within the coveted Golden Triangle. offering contiguous space greater than 2,000sqm. Tenants looking for Premium grade buildings to align with their business aspirations, could find that their search proves The pipeline of contiguous office space for the Brisbane CBD challenging. The only two options for Premium grade assets are market is diminishing, particularly in the prime grade market. ONE ONE ONE Eagle Street which has 3,001sqm over two floors During 2018, the larger contiguous banks (>5,000sqm) of and 71 Eagle Street with 2,486sqm across two floors. Both of available prime office space in 480 Queen Street, Riverside these spaces are now being marketed for lease. Centre, 192 Ann Street, 275 George Street and 310 Ann Street have all secured commitments from the likes of the Department New developments with a reasonable degree of certainty are of Veterans’ Affairs, Westpac, WeWork, the QLD Government and also quite scarce. There are only three new development options Allianz. Our findings show that there will be 35 assets offering offering contiguous space over the next few years, including 300 234,170sqm of contiguous office space between now and 2021. George Street (48,000sqm available), Midtown Centre (42,000sqm

Contiguous Space Options | Brisbane CBD

60,000

Immediate 2019 2020 50,000

40,000

30,000

20,000

10,000

-

Source: Colliers International

8 Colliers International | Contiguous Office Space Report Premium Grade Assets available) and 12 Creek Street ‘The Annex’ (7,000sqm available). Total Contiguous Space Available Looking further ahead, we don’t envisage anything else to enter the market until early 2022 when Suncorp’s headquarters at 80 Immediate 2019 2020 2021 Ann Street will be delivered offering a further ~12,000sqm along ONE ONE ONE Eagle 3,001 with approximately 38,000sqm of associated backfill. However, Street , 71 Eagle 2,486 QSuper have already leased ~18,000sqm of Suncorp’s backfill in Street , reducing the amount of Suncorp’s backfill to approximately 20,000sqm. Other than this and QSuper’s backfill in 70 Eagle Street and 175 Eagle Street, it is not likely that anything 3,000-4,999sqm Options else will be available in the market until early 2023. Immediate 2019 2020 2021 Currently available in the market are a number of B grade options. Typically, we find that B grade buildings generally have floorplates 69 Ann Street 3,463 ONE ONE ONE Eagle 3,001 under 1,000sqm, which then means contiguous options are Street available over more levels than in prime grade buildings. Tenants 119 Charlotte Street 4,955 in the market for space between 2,000sqm to 4,000sqm may be 133 Mary Street 4,039 forced to consider these options, especially if a renewal is not 143 Turbot Street 4,676 175 Eagle Street possible. Again, the majority of the available contiguous space is 3,477 (levels 9-11) located outside of the Golden Triangle, so amenity and connectivity 175 Eagle Street 4,522 will be essential for owners to consider when thinking about how (levels 14-17) they’ll attract and retain these tenants. 179 Turbot Street 3,789 229 Elizabeth Street 4,500 We believe with vacancy now declining and a limited supply 275 George Street 3,903 outlook past 2019, A grade, contiguous space will be snapped up 388 Queen Street 3,677 quickly over the next 12 months. Floorplate size in this grade is 414 George Street 3,768 marginally larger than B grade and the available assets locations 545 Queen Street 3,000 within the market are more attractive. Infrastructure projects in Brisbane are having a positive effect 5,000-9,999sqm Options on the office market, and some direct impacts have already been evident. Initially, we saw the Land Centre at Woolloongabba Immediate 2019 2020 2021 withdrawn to make way for the Cross River Rail project, which 32 Turbot Street 9,232 resulted in over 12,000sqm of net absorption from the displaced 90-110 Queen Street 5,359 tenants moving into the CBD. This will be added to with next 100 Creek Street 6,534 year’s withdrawal and demolition of the Brisbane Transit Centre 180 Ann Street 6,857 (29,000sqm). Not only will this stock be removed from the market 259 Queen Street 7,587 The Annex, 12 Creek Street 7,074 in early 2019, but net demand of circa 12,000sqm will result, with numerous tenants being displaced from the West Tower, namely Australia Post, DHL, Sonic Healthcare, Queensland Rail and the Department of Defence. 10,000sqm+ Options This data highlights the fact that tenants need to start thinking about their lease expiry early. Whilst it may seem like there is Immediate 2019 2020 2021 ample time, the groups who use this information to implement a 260 Queen Street 11,600 strategy early will be afforded the most options. 300 George Street 48,000 Midtown Centre 42,000

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