AUSTRALIA BRISBANE S NEXT DAY MAJOR DEVELOPMENTS DRIVING THE CBD CONTENTS CITIES INTO ACTION BRISBANE S NEXT DAY 04 MAJOR PROJECTS 04

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1 AUSTRALIA BRISBANE S NEXT DAY 2021 MAJOR DEVELOPMENTS DRIVING THE CBD CONTENTS BRISBANE S NEXT DAY 04 MAJOR PROJECTS 04 THE BRISBANE OF THE FUTURE 06 October 2017 CITIES INTO ACTION IMPLICATIONS & OPPORTUNITIES 07 CONCLUSIONS 10

2 CITIES INTO ACTION Prime gross effective rental growth of 30% ( ) $12.4bn in major developments identified in Brisbane CBD 16% ( ) Real economic growth in Brisbane 7.1% P.A. Gross value added (GVA) growth in Professional services sector ,000 new jobs over the next decade in Brisbane CBD and Fringe AUTHORS DOMINIC BROWN Head of Research, Australia and New Zealand +61 (0) ,000 NEW OFFICE - DEMANDING JOBS over the next decade in Brisbane CBD and Fringe CONTACTS JOHN SEARS National Director, Research +61 (2) john.sears@cushwake.com GLEN WRIGHT Managing Director, Queensland +61 (0) glen.wright@cushwake.com JAMES QUIGLEY Head of Capital Markets, Australia and New Zealand +61 (0) james.quigley@cushwake.com 105 MILLION international visitor nights in Brisbane by % y-o-y increase in Engineering jobs (to July 2017) Forecast growth of 16,750 Professional Services jobs to % / $ 143 spread between Prime and B-grade office gross effective rents in Brisbane CBD Sydney = 20% Melbourne = 25%

3 EXECUTIVE SUMMARY The Brisbane CBD commercial real estate (CRE) market has experienced a phase of relative weakness since the GFC, but an improving economic outlook and a wave of major development and infrastructure projects across Brisbane s CBD and inner suburbs promises to drive the city s economic growth over the coming decade creating employment, tourism and CRE opportunities. KEY TAKEAWAYS: BRISBANE S GROWTH: Seven major projects totalling $12.4bn, with five of the projects already approved and under construction. The Greater Brisbane economy is forecast to increase by 16% in real terms over the next five years. At the industry sector level, four of the top five industry sectors are forecast to show stronger growth, especially for IMT and Professional Services. Over the next decade in excess of 65,000 jobs are forecast to be created in Brisbane CBD and Fringe markets. International tourist visitor nights are forecast to increase by over 70% in the next decade, leading to over 105 million visitor nights in COMMERCIAL REAL ESTATE OPPORTUNITIES: Increased demand for office space, with a near-term focus on engineering and related companies. This could drive demand for larger floorplate buildings that have been required by these professions as well as an increased need for coworking options, rather than traditional project space. Opportunity for retail to expand beyond the Queen Street Mall core with increased foot traffic along Mary and/or Charlotte Streets and in the vicinity of the proposed Albert Street station. Potential redevelopment and repositioning of secondary grade office assets along Mary, Charlotte and George Streets. Expansion of mixed use development to more suburbs, especially along proposed transit routes. Buranda, Kelvin Grove and Greenslopes are areas with high potential.

4 Edward Street: $11.4m 2018 Howard Smith Wharves: $110m 2018 Brisbane Quarter: $1bn 2019 Queens Wharf: $3bn Cross River Rail: $5.4bn 2024 Brisbane Metro: $944m TBC Brisbane Live: $2bn TBC Queensland is known for being beautiful one day and perfect the next. However, Brisbane s commercial real estate market has experienced some stormy weather since the GFC epitomised by office vacancy rates rising from near zero in 2007 to over 16% in 2016 and effective rents currently 45% below their peak. In 2018 and beyond a wave of major development and infrastructure projects promise to drive economic growth and provide new commercial real estate (CRE) opportunities. In two recent reports 1 Cushman & Wakefield considered the construction of transport infrastructure in Brisbane s industrial precincts and its impact on the sector. Here we focus on major projects in the CBD and inner suburbs and their impact on the office, retail and mixed-use sectors. MAJOR PROJECTS Proposed development and infrastructure projects targeting Brisbane CBD over the next 10 years are valued at over $12.4bn; part of over $20bn in projects across the city. Together they will help deliver the Council s vision of establishing Brisbane as a new world city. These projects include: Edward Street Due: 2018; Value: $11.4m. This Brisbane City Council led initiative is to cement the precinct as a world class retail environment characterised by a broad, tree-lined boulevard. The project covers the entire length of the street with the retail strip bookended by green gateways. The core precinct is already home to major international luxury brands including Hermès, Ermenegildo Zegna, Mont Blanc, Gucci and Cartier. Howard Smith Wharves: Due: 2018; Value: $110m. The redevelopment of this 3.4ha site will include a 5-star Art Series hotel, exhibition space, restaurants and a new riverside parkland. The heritage wharf buildings will be renovated and converted to house the restaurants. 1 Brisbane TradeCoast: ready for take-off, July 2017 Inland Rail: infrastructure leads industry, July

5 Cities into Action: Brisbane s next day Brisbane Quarter: Cross River Rail: Due 2019: Value: $1.0bn. Brisbane CBD s first Due 2024; Value: $5.4bn. A 10.2 kilometre rail integrated, mixed use precinct incorporating office, retail, hotel and residential uses. Starwood hotels have committed to the development, with Australia s first purpose built link from Dutton Park to Bowen Hills, with 5.9 kilometres of tunnel under the Brisbane River and CBD. It will connect to both northern and southern rail networks and facilitate commuting W Hotel. In addition there will be two levels of retail (~4,200 sq m) beneath a 40 storey (~48,000 sq m) office tower and an 82 storey residential tower. in/out of the CBD. The project includes new, high-capacity stations at four inner-city locations and an upgrade of the Exhibition station. By 2036, forecasts expect 90,000 Queens Wharf: people travelling to work each day in the morning peak hours. Due 2022 onwards; Value $3.0bn. An integrated resort development across 26ha. The project will deliver over 1,000 hotel rooms across five hotels, a residential precinct of 2,000 units, a 100m sky deck, 50 bars and restaurants and a pedestrian bridge connection to Southbank. Brisbane Metro: Subject to funding and approvals; Value: $944m. Brisbane City council led development initiative of a high frequency, high capacity public transport system along a 21km route servicing 18 stations. The Metro 1 Figure 1: Proposed projects in inner Brisbane Source: Cushman & Wakefield 5

6 route will operate between Eight Mile Plains and Roma Street. Metro 2 will operate between the University of Queensland and The Royal Brisbane and Women s Hospital (RBWH). The project will connect with the Cross River Rail route at Boggo Road (Metro 2) and Roma Street (Metro 1 and Metro 2). Brisbane Live: Awaiting approval; Value: $2.0bn. Development of an entertainment precinct located on top of the Roma Street rail interchange hub. Facilities include a $450 million, 17,000-seat arena along with multiplex cinemas, an amphitheatre and proposed commercial, residential and hotel towers. The precinct links King George Square to the Barracks on Petrie Terrace and benefits from the Cross River Rail and Brisbane Metro projects. growth than the past three years. Gross value added (GVA) by Professional services (7.1% p.a.) is forecast to experience the second strongest growth of all sectors behind IMT (8.2% p.a.), which comes off a much lower base, with Finance also showing strong growth of 4.2% p.a. (Figure 2). All of the above provides fundamental support for the office sector. Employment In line with an improving economy, there are positive signs for employment growth. Over the next decade in excess of 65,000 jobs are forecast to be created in Brisbane CBD and Fringe markets. Approximately three quarters of these, (~48,000) are in occupations requiring office space (Figure 3). Figure 2: Growth in gross value added by sector %p.a., Brisbane % 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 75% of economy Establishing Destination Brisbane It is clear that the projects listed above, along with other tourism and transport infrastructure such as the parallel runway and Luggage Point cruise terminal, are designed to create and accommodate the Brisbane of the future Destination Brisbane. So what does the Brisbane of the future look like? Economy The Greater Brisbane economy is forecast to increase by 16% in real terms over the next five years at an average of 3% per annum. At the industry sector level, four of the top five industry sectors are forecast to show stronger Figure 3: Base office demand growth, Brisbane Source: Oxford Economics; Cushman & Wakefield Forecast CBD Fringe CBD Growth Fringe Growth 10% 8% 6% 4% 2% 0% -2% -4% Source: Deloitte Access Economics; Cushman & Wakefield 6

7 Tourism Forecasts produced by Tourism Research Australia (TRA) anticipate 47% growth in the total number of visitor nights in Brisbane, with international visitor nights increasing by over 70% leading to over 105 million visitor nights in (Figure 4). The growth of the cruise industry and expansion of the second runway are integral to this, highlighted by the recently announced addition of an Air China direct flight route from Beijing to Brisbane starting from December 2017.This route expansion alone is expected to bring 170,000 passengers over the next four years. IMPLICATIONS AND OPPORTUNITIES The scale of development occurring in and around the CBD, together with population and labour force growth, will drive demand for space across the main CRE sectors. As a result of declining development activity following the commodities downturn there is currently little new office stock under construction and there has been no significant new retail supply in the CBD over the past decade. The improving outlook marks a new day for Brisbane CRE with the following potential opportunities. Increasing demand for large floorplate offices In the near term engineering companies are likely to benefit from the range of projects underway, aligning with forecast GVA growth (Figure 2), driving the need to recruit more staff. This has already started to emerge in Engineering, ICT and Science Technicians job adverts which have increased by 12.5% y-o-y in July 2017 (Figure 5). While not directly comparable, Deloitte Access Economics forecasts that Professional, scientific and technical services will account for one third of total white collar employment growth in Figure 2: Growth in gross value added by sector %p.a., Brisbane Brisbane CBD and Fringe areas over the next eight years to This equates to an increase of approximately 16,750 workers, which all other factors being equal would drive demand for over 130,000 sq m of office space. Such growth is not far short of that seen during the mining boom ( ), when Professional, scientific and technical services grew by 19,500 employees International Forecast Domestic Source: Tourism Research Australia; Cushman & Wakefield Traditionally engineering companies have chosen to locate in the Fringe market, mainly Fortitude Valley and Southbank, where they can access large floorplate, campus style buildings. These markets are likely to be the main beneficiaries of any increase in engineering employment, either in existing space or potentially through new developments. Figure 5: Brisbane Engineering, ICT and Science Technicians job vacancies, quarterly average Source: ABS, Dept of Employment; Cushman & Wakefield 7

8 However, any need for project space may see an increase in demand for temporary coworking office accommodation, rather than direct leases as seen in 2011 with the mining boom. Re-visioning the CBD Looking to the longer term, these developments have the potential to alter the way people use and navigate the CBD as they walk between newly defined and created precincts. The walking economy is something that has been recognised by the City of Melbourne Council in its Walking Plan which highlighted the strong relationship between walking, connectivity and economic productivity. In light of this, these major projects will create new connections and present subsequent opportunities for redevelopment and repositioning of existing assets in key locations bringing Charlotte Street and Mary Street in to play for retailers. REPOSITIONING OF OFFICE ASSETS Within Brisbane there could be up to three key anchor points across the CBD: (i) Eagle Street the Golden Triangle office precinct; (ii) Queen s Wharf leisure and entertainment destination; and (iii) Brisbane Live entertainment precinct. These three anchor points are at different ends of the CBD and together form their own Golden Triangle (Figure 6). Figure 6: Brisbane CBD office stock by grade RETAIL TO EXPAND BEYOND QUEEN STREET MALL CORE Queen Street Mall is Brisbane s core retail strip, but similar to other prime CBD strips, retailers are forced to compete for a limited amount of available space. Currently there are just four retail vacancies across the mall and only one at grade. With retail arguably at capacity, there is opportunity to expand beyond this core to accommodate future demand and growth. The evolution underway in Sydney presents an interesting blueprint for Brisbane. Sydney s George Street is establishing itself as a tech hub as the lack of space on Pitt Street and redevelopment of George Street act as push and pull factors. More retailers are now looking to relocate to George Street to take advantage of the increased foot traffic as the street becomes pedestrianised. Brisbane could do well to take heed of these changes. While Adelaide Street has traditionally played a secondary role to Queen Street, the development of Queen s Wharf and Cross River Rail station on Albert Street could draw the heart of the CBD more to the south east,. Source: Cushman & Wakefield Logically, Charlotte Street and Mary Street are the direct route between Eagle Street and Queen s Wharf and could therefore receive greater foot traffic. Not only does this support the case for retailers to more closely examine these streets, but there could also be opportunities for the office sector. 8

9 Both streets currently accommodate mainly secondary grade office stock with a small amount of retail, mainly bars and cafes. As such, opportunities for redevelopment are present along both streets. The main hindrance to greater street activation in this area is the comparatively steep gradient running uphill from Albert Street to William Street. However, there are opportunities to create a vibrant hub in and around the proposed Albert Street station where the gradient is comparatively flat. Similarly, if Brisbane Live were to proceed, this could see greater foot traffic between Queens Wharf / Brisbane Quarter and Brisbane Live / Roma Street Station. This presents potential opportunities along George Street, which being flat, does not suffer the gradient issues of elsewhere in the CBD. Indeed with the development of Brisbane Metro and Cross River Rail, these projects could drive greater foot traffic between Roma Street station and the CBD core. Given B-grade effective rents are currently at a 32% discount to Prime effective rents in the CBD, this suggests there is potential for significant uplift. To put this into context, the spread between B-grade and Prime effective rents in Sydney and Melbourne are 20% and 25% respectively (Figure 7). MORE MIXED-USE TO COME TO THE SUBURBS Over the past decade, Brisbane has been Australia third largest and fastest growing city. Almost half of this growth has occurred within 20km of the CBD, with inner city suburbs such as South Brisbane and Kelvin Grove growing at a rate in excess of 5% p.a. in As Brisbane s population continues to grow, greater demand for dwellings will continue to be placed on inner city suburbs, driving the need for higher density residential development. However, residents want walkable amenity in their local area, including retail and lifestyle services, which has driven the rise of mixed-use development. While mixed-use development is already a component of inner suburbs such as West End and Newstead, the development of new transport infrastructure, such as Cross River Rail and Brisbane Metro, could not only cement the viability of some locations such as Boggo Road, Kelvin Grove and Roma Street but also present opportunities further out from the CBD. Buranda is currently on the edge of the higher density development front, suggesting it is likely to become a key target of developers in the next cycle. Further afield Herston in the North together with Greenslopes and around Griffith University in the south could be worth further investigation. Figure 7: Prime to B-grade office gross effective rental spread, Q % $187 25% $132 32% $143 Sydney Melbourne Brisbane Source: Cushman & Wakefield 9

10 CONCLUSIONS Brisbane s commercial real estate markets have languished over recent years as the negative impacts from the end of the resources boom rolled through the economy. The worst is now over and Brisbane has a bright future ahead, driven by a wave of new infrastructure and major development projects. As we have seen in other cities, these projects should reinvigorate the Brisbane market and provide opportunities going forward. Within the CBD there could be opportunities to expand the city s retail offering beyond its core in Queen Street mall along with redevelopment and repositioning opportunities for assets along Mary, Charlotte and George Streets. Outside of the CBD, rapid transport projects are likely to make suburbs along the routes viable locations for future mixed use development projects as they become more sought after residential locations. CITIES INTO ACTION Cushman & Wakefield Sydney Office Level 22, 1 O Connell Street Sydney, NSW 2000 Australia phone +61 (2) Disclaimer The information in this material is general in nature and has been created by Cushman & Wakefield for information purposes only. It is not intended to be a complete description of the markets or developments to which it refers. The material uses information obtained from a variety of sources which Cushman & Wakefield believe to be reliable however, it has not verified all or any information and does not represent, warrant or guarantee its accuracy, adequacy or completeness. Any forecasts or other forward looking statements contained in this material may involve significant elements of subjective judgment and assumptions as to future events which may or may not be correct and are beyond the control of Cushman & Wakefield. Cushman & Wakefield is not responsible for any loss suffered as a result of or in relation to the use of this material. To the extent permitted by law, Cushman & Wakefield excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this material. All expressions of opinion included in this material are subject to change Cushman & Wakefield. All rights reserved. To see a full list of all our publications please go to cushmanwakefield.com or download the Research App