PERMANENT OFFICE STOCK WITHDRAWALS

Transcription

1 RESEARCH PERMANENT OFFICE STOCK WITHDRAWALS DEVELOPMENT MARKET INSIGHT SEPTEMBER 01 HIGHLIGHTS After permanent withdrawals of,9m² in 015 the three East Coast CBD markets will see a further 0,m² of office stock permanently withdrawn between 01 and 019. The associated Fringe markets recorded withdrawals of 1,05m² during 015. This is expected to more than double to 15,513m² in 01 which is expected to be the peak year for Fringe withdrawals. Building conversion accounts for 3% of withdrawals; with % to be demolished for redevelopment. Despite an increase in office redevelopment (1%), residential and hotel uses dominate at %.

2 KEY FINDINGS Permanent withdrawals of office stock increased 1% in 015 with a further doubling expected in 01. The Sydney CBD dominates withdrawals in the next four years accounting for 5% of space to be withdrawn, followed by the Sydney North Shore (1%) as the lack of sites, economic growth and development demand fuels activity. There is less land pressure in Melbourne, despite the unprecedented supply levels for inner city apartments. The bulk of withdrawals are expected to trend outwards towards the suburbs in coming years. Brisbane withdrawals will peak in 01, underpinned by the Queens Wharf development site. JENNELLE WILSON Senior Director Research QLD MATT WHITBY Head of Research and Consulting Sustained demand from the residential apartment market has been the biggest driver in the withdrawal of office stock SYDNEY DOMINATES Permanent office stock withdrawals and the future pipeline has continued to build, dominated by Sydney. Residential and hotels remain the dominant alternative use, but office redevelopments are on the rise. Permanent withdrawals of office stock across the major East Coast markets accelerated through 015, increasing 1% above 01 levels. This will increase further during 01 where total withdrawals of 3,0m² is expected to form the peak of withdrawal levels as analysed by Knight Frank Research. FIGURE 1 Permanent Office Stock Withdrawals 000m² by city & market Potential SYDNEY CBD BRISBANE CBD projected MELBOURNE FRINGE & SUBURBS MELBOURNE CBD SYDNEY NORTH SHORE BRISBANE FRINGE For the years , Knight Frank Research has identified 0,m² of permanent withdrawals across the CBDs of Sydney, Melbourne and Brisbane, with a further 13,9m² identified as potential withdrawals. The Sydney CBD dominates, accounting for % of forecast withdrawals in the CBD markets. In the fringe CBD precincts of Sydney North Shore, Melbourne Southbank & St Kilda Road and the Brisbane Fringe market there are also significant levels of office stock withdrawal. For ,,0m² of office stock has been identified as expected withdrawals, with a further,1m² of potential withdrawals. In the Melbourne suburbs withdrawals are also set to accelerate with up to 10,000m² of near term and potential withdrawals. Drivers The major driver for this expected withdrawal of office stock has continued to be the sustained demand from the residential apartment market, accounting for 3% of all withdrawals In addition the fundamental improvements to tourism as the AUD has depreciated and Australia is seen as a relatively safe destination accounts for a further 3% in hotel and residential/hotel proposals. Largely initiating in the Sydney market, the demand for modern office space has also seen the withdrawal of older stock for redevelopment into new office towers increase, representing 1% of space withdrawn. Impacts Withdrawal of secondary office stock is expected to have a cushioning effect against relatively high supply levels in the Brisbane and Melbourne markets. For the Sydney CBD notwithstanding the high new supply of 015 (13,131m²) the withdrawals of the next four years will potentially outweigh new supply, reducing stock in a time of high demand. FIGURE Permanent Withdrawal v New Supply % of current stock base CBD markets 15.0%.0% 5.0% 0.0% -5.0% -.0% -15.0%.% -.% -1.% NEW SUPPLY WITHDRAWALS % -1.% -0.%.3% -5.% -1.5% Sydney CBD Melbourne CBD Brisbane CBD POTENTIAL ADDITIONAL WITHDRAWALS

3 PERMANENT OFFICE STOCK WITHDRAWALS SEPT 01 RESEARCH SYDNEY Permanent withdrawals of office stock in the Sydney CBD and North Shore markets will increase dramatically in 01 with 19,0m² to be withdrawn across both markets. This follows the relatively lower past two calendar years of 0,m² and,9m² respectively. This acceleration of withdrawals in 01 is expected to be the first of three consecutive years of significant withdrawal of stock, culminating in 33,m² being withdrawn in 01. The CBD will dominate withdrawals with the Sydney CBD entering into a period of almost unprecedented activity with high construction, refurbishment, withdrawals and tenant demand combining to create a dynamic market. Initially the strong withdrawals were seen as a welcome balance for high new supply levels, however more recently these withdrawals are creating some concern of sending the market into undersupply. Over the period the Sydney CBD is forecast to record 539,099m² of permanent withdrawals, representing.% of the stock base at the beginning of 01. Over the same period there is also expected to be high levels of temporary withdrawal and subsequent return for major refurbishment projects, totalling some 300,000m². FIGURE 3 Sydney Office Stock Withdrawal ( 000m²) CBD & North Shore Permanent projected Potential CBD NORTH SHORE Forecast new supply over the period totals circa 30,000m², this represents circa % of 01 stock levels. Thus the next four years could easily result in a net reduction of office stock in the Sydney CBD if withdrawals proceed as currently expected. This is likely to trigger additional office development or provide scope to fast track other proposals to fill the expected demand. Already it can be seen that withdrawals are reducing post-01 which intimates that the bulk of office withdrawals will be concentrated over the next three years. Withdrawals across the North Shore are also expected to accelerate in 01 and 01, as residential demand surges in these locations. Over the period the North Shore is expected to record 139,1m² of withdrawals (% of current stock). This is concentrated in North Sydney (,m²) representing 9.% of stock, but the greatest impact is Crows Nest/St Leonards where 15% (9,31m²) of the stock is to be withdrawn. TABLE 1 Recent Major Sales Activity Sydney CBD & North Shore - Conversion or Demolition Assets Address Precinct Price $ mil Bld NLA m² $/m² NLA Site m² $/m² Site WALE yrs Vendor Purchaser Sale Date 1 Lavender St North Shore.00^,500 13,333 1,39 0,15 n/a Barana Group Aqualand Jul 1 George St CBD 50.1#,5,9 51, c.3.0 Anton (G.S.) Poly Real Estate Jul 1 0 George St CBD 9.19#,91 1, 90 1,1 c.3.0 Anton (G.S.) Poly Real Estate Jul 1 5 Alfred St Berry St & 1 Denison St Miller St 1-9 Macquarie St North Shore North Shore North Shore ^ 9,9 13,09,,953 n/a Bridgehill Offshore Private Jun # c.,000 c.,000 3,50 1,333 n/a Eastmark Winten Group Jun # 1,0,35 1,0 1, Local Investment Fund CBD 15.50# 9, 1, 90 1,090 n/a AMP Life Transport for NSW* Apr 1 Macrolink Real Estate Dec Castlereagh St CBD 9.00#,,1 1,303 5,.0 Centuria 15 Castlereagh Fund Transport for NSW* Dec 15 0 Waterloo Rd & 1 Byfield St North Shore 1.00^, 1,,5 15,39 <.0 Centuria Opportunity Fund No. Blue Catty Investment Dec Elizabeth St CBD 1.0^ 15,0 9,90 1,1,09.3 LaSalle Asian Opportunity Fund III Markham Real Estate Dec Pacific Hwy North Shore.50^,03,93 1,3, < 1.0 Charter Hall Direct Office Fund New Hope Real Estate Oct 15 ^ likely conversion # likely demolition *Metro Rail G.S. refers Goldman Sachs 3

4 SYDNEY CBD WITHDRAWAL (,500m²+) Martin Pl,55m² Investa/Gwynvill H 015 Office Redevelopment 130 Elizabeth St 9,m² Ecove Gp & China Aoyuan Property Gp H Clarence St 15,0m² Investa Office Fund H1 01 Office Redevelopment 1 George St & 33 Pitt St,0m² Lend Lease H1 01 Office Redevelopment 3 Sussex St,m² Meriton H1 01 Residential Conversion 1-9 (Lot 1) Macquarie St 9,m² Macrolink Real Estate H 01 1 Alfred St & Pitt St,m² Dalian Wanda Group H 01 Residential/Hotel Redevelopment Bridge St & 3-33 Bridge St 1,15m² Pontiac Land Group (99yr leasehold) H1 01 Potential Residential/Hotel Conversion 301 George St,5m² Brookfield H1 01 Office Redevelopment 333 Kent St,93m² Maville H1 01 Residential/Hotel Conversion 39 Martin Pl 1,55m² DEXUS* H1 01 Metro Rail 55 Hunter St 13,m² City Freeholds* H1 01 Metro Rail 15 Castlereagh St,m² NSW Government H1 01 Metro Rail 59 Goulburn St 19,553m² Roxy Pacific Holdings H 01 Hotel Conversion 50 George St 1,930m² TFE Hotels H1 01 Hotel Conversion Sussex St,m² Deutsche Asset Management (for sale) H1 01 Potential Residential Conversion 1A - King St/13-15 Phillip St,90m² ISPT/Galileo Group H Bridge St 5,90m² AMP H1-01 Office Redevelopment 50-5 Park St 1,13m² Far East Group H1 01 Residential Conversion 01 Elizabeth St 3,00m² Perron Investments/DEXUS Property Group H 01 Potential Residential Conversion 33 Castlereagh St 19,9m² Visionary Investment Group H 01 3 Pitt St, 55 Pitt St & - Underwood St 19,0m² Mirvac H 01 Office Redevelopment 0 George St,91m² Poly Real Estate H 01 Office Redevelopment 33 Pitt St 1,50m² Visionary Investment Group H1 019 Residential Conversion 19 Elizabeth St-1,0m² - Markham Real Estate H 019 Residential Conversion 19 Kent St 15,000m² Barana Group H Liverpool St,53m² - Shimao Property Group Potential Elizabeth St 1,05m² Far East Group Potential Residential Conversion 31 Elizabeth St,900m² Bright Ruby Mixed Use Conversion Office Stock Withdrawn (015 & H1 01) Expected Withdrawals Potential Withdrawal Targets Source of Map: Knight Frank As at August 01 Office NLA quoted. *to be compulsorily acquired by State Govt

5 PERMANENT OFFICE STOCK WITHDRAWALS SEPT 01 RESEARCH Drivers The primary driver for the permanent withdrawal of office stock in the Sydney market has been demand in the residential market and to facilitate future office redevelopment. Over the calendar years 01 & 015, withdrawals were dominated by office redevelopment (5%) and residential conversion or redevelopment (3%). As shown in Figure this trend is expected to continue over the next four years with a change of use to pure residential development to account for 1% of all withdrawals. Hotels and residential/hotel schemes account for a further 19% of the withdrawn stock supported by a resurgent tourism sector. The strong and increasing underlying demand for office accommodation located in the core of the CBD has pushed withdrawals of older stock for the construction of new office space to new highs, now accounting for 3% of stock withdrawals. Along with 0 Martin Place this trend will re-shape the northern ends of Pitt Street and George Street. Over the past six months the Metro Rail proposal has received funding and will proceed triggering significant office space withdrawals not previously expected. In the CBD the Metro Rail will result in the removal of 0,555m² of office space with a further 1,55m² from the North Shore market. FIGURE Sydney Reason for Withdrawal CBD & North Shore Withdrawals HOTEL RESIDENTIAL 1% % 3% RESIDENTIAL/HOTEL OFFICE OTHER MIXED USE METRO RAIL % % Conversion versus Redevelopment During 01 & 015 withdrawals were dominated by redevelopment opportunities with 93% of the withdrawn stock to be demolished and while most were smaller buildings the significant assets included 333 George St, 0 Martin Place and 151 Clarence St. Going forward there will be greater levels of conversion, particularly in the North Shore where 5% of withdrawals are residential conversions allowing for a quicker development return. In the CBD only % of expected withdrawals are to be converted with the 9% 1% remaining 31,m² of office space anticipated to be demolished. The largest of these are 50 Bridge St (5,90m²) and 1 Alfred St (,m²) plus, in the longer term, 15 Liverpool St (,53m²) all of which have strong locational benefits. Future The majority of withdrawals are located within the Midtown and Core precincts of the CBD. There is a significant difference between the two precincts as the Midtown trends further towards residential with eight office buildings to be withdrawn for residential uses. The Core is further stamping its dominance as the key office location with all but one of the withdrawals for the redevelopment of new office supply located within the Core, the exception being 151 Clarence St, in the Western precinct. While long term demand for residential apartment living in the CBD is expected to continue, the strong office demand being experienced in the Sydney CBD, combined with the current development funding restrictions, a degree of market caution and uncertainty surrounding the new Sydney planning strategy, may see some conversions deferred. The North Shore will continue to experience strong residential demand, becoming more mixed use precincts with areas such as St Leonards/Crows Nest expected to lose 15% of its office stock during the next four years. TABLE Major Office Withdrawals Sydney North Shore (,000m²+) Address Precinct NLA (m²) Owner/Developer Reason/Expected Reason for Withdrawal Date 1-3 Miller St North Sydney,015 Yuhu Group Mixed Use Redevelopment Mar Pacific Hwy St Leonards/CN,03 New Hope Real Estate Residential Conversion Jun 1 Christie St St Leonards/CN c.,00 Dyldam H 01 0 Christie St St Leonards/CN,000 Private (Greg Gav) Residential Conversion H 01 Miller St North Sydney 1,0 Transport for NSW Metro Rail H Lavender St North Sydney,500 Aqualand Residential Conversion H Walker St North Sydney 1,3 Aqualand Residential Conversion H 019 Waterloo Rd Macquarie Park,15 Goodman Group Residential Conversion Potential 1 Waterloo Rd Macquarie Park 1, Goodman Group Residential Conversion Potential 5 Alfred St North Sydney 9,9 Offshore Private Residential Conversion Potential 15 Pacific Hwy Chatswood, Lindfield Developments Potential CN Crows Nest 5

6 MELBOURNE Across the Melbourne CBD, St Kilda Road and Southbank markets 9,1m² was withdrawn in 015, the highest level in 15 years. This result was boosted by increased redevelopment activity in the St Kilda Road and Southbank office markets with the CBD withdrawals remaining below the heights of 013. Withdrawals for 01 are expected to surpass 90,000m, again led by withdrawals in the St Kilda Road and Southbank office markets Whitehorse Road in Box Hill was purchased by Asia Pacific Group from Larkfield Property for $1.5 million. The former office was demolished in late 015 with a residential/hotel development currently under construction and scheduled to be complete in late 01. FIGURE 5 Melbourne Office Stock Withdrawal ( 000m²) CBD, Southbank, St Kilda Rd & Suburbs Permanent projected Potential CBD SUBURBS SOUTHBANK STKILDA RD Despite new supply of Inner City apartment development running at double the long term average, somewhat surprisingly, the residential vacancy rate of the Inner Melbourne precinct fell over the last year. The City of Melbourne s population is expected to experience an increase of over,00 people to,35 by 031 which is likely to maintain the elevated level of apartment development activity. Between there is anticipated to be 0,0m² of office space permanently withdrawn from the CBD, St Kilda Road, Southbank and Suburban office markets. Over that period, St Kilda Road office space withdrawals are forecast to account for 3.9% of total withdrawals followed by the CBD at 5.9%, with the suburbs and Southbank even, both accounting for 1.%. With no new office developments currently under construction in the St Kilda Road office market, office stock levels are forecast to continue to decline in the precinct. The level of permanent withdrawals between 01 and 019 in the St Kilda Road represents.9% of the current stock base. While net office stock levels in Southbank between will increase marginally, the level of office withdrawals represents 9.3% of the current stock. TABLE 3 Recent Major Sales Activity Melbourne - Conversion or Demolition Assets Address Precinct Price $ mil Bld NLA m² $/m² NLA Site m² $/m² Site WALE yrs Vendor Purchaser Sale Date -30 Whitehorse Rd, Box Hill Suburban 30.0#,3,5,50,3 n/a Navy Health & Scope Offshore developer Jul Flinders Ln CBD 1.50# 3,300 5,0 1,`,0 VP NM Computer Services Tune Hotels Jun King St CBD 1.35# 50 1, ,9 VP Asia One BPM May-1 1- City Rd Southbank 3.33# 1,00,9 1,5 1,19 n/a Private Investor Aohua Sheng Le Property Apr Batman St, West Melbourne Suburban 35.00#,13 3,51 3,39 9, n/a Hume Partners Asian Pacific Group Dec-15 Bowen Cres St Kilda Rd 0.00# 3, 5,35 1,3 1,0 n/a 35- City Rd Southbank.0#,5,5 1,0 13,30 n/a 33 La Trobe St CBD 0.0#,,9,5,51.0 Impressive Enterprises Opera Australia/ Private Investor Investa Office Fund (IOF) GURNER Pro-Invest Sterling Global Nov-15 Oct-15 Jul-15 ^ likely conversion # likely demolition

7 PERMANENT OFFICE STOCK WITHDRAWALS SEPT 01 RESEARCH MELBOURNE MAJOR WITHDRAWALS 1 30 Lonsdale St, CBD,90m² Brady Group H Queens Rd, St Kilda Rd 9,00m² Hallmarc Developments H St Kilda Rd, St Kilda Rd,1m² Summerhill Property H St Kilda Rd, St Kilda Rd,55m² Golden Age H Swanston St, CBD,3m² Scape Student Living H1 01 Student Accommodation Redevelopment Queens Rd, St Kilda Rd,m² JD Group H St Kilda Rd, St Kilda Rd,099m² LAS Group/Qualitas H Lonsdale St, CBD,53m² Central Equity H 01 1 St Kilda Rd, St Kilda Rd 1,5m² UEM Sunrise H La Trobe St, CBD 1,03m² Scape Student Living H 01 Student Accommodation Redevelopment -9 Flinders Ln, CBD 3,m² Wake Up Hostels H1 01 Hotel Conversion 0 Queen St, CBD 3,130m² Austhome/Brady Group H Bowen Cres, St Kilda Rd,m² GURNER H St Kilda Rd, St Kilda Rd 1,35m² CLL@AU H1 01 Residential/Hotel Redevelopment 00 Collins St, CBD,995m² Landream H La Trobe St, CBD,m² Sterling Global H 01 Residential/Hotel Redevelopment Flinders Ln, CBD 3,300m² Tune Hotels H 01 Hotel Redevelopment Queens Rd, St Kilda Rd,90m² LK Property Group Potential St Kilda Rd, St Kilda Rd,5m² Chip Eng Seng Potential 3 Exhibition St, CBD,0m² Asia One/Salta Property Potential King St, CBD,900m² Capital Alliance King Potential Office Stock Withdrawn Expected Withdrawals CBD Potential Withdrawal Targets Source of Map: Knight Frank As at August 01 Office NLA quoted. ST KILDA RD

8 Drivers The predominant driver for withdrawal of office stock in the Melbourne market has been the demand for residential accommodation, supported by the nation -leading population growth of Victoria and Greater Melbourne. As seen in Figure, residential development clearly dominates the reasons for the withdrawal of office space, accounting for 9% of the office area to be withdrawn between Outside of residential development uses there has been increasing interest from student accommodation providers. Given the falling Australian dollar, increasing number of overseas student enrolments and chronic shortage of suitable purpose -built supply; a number of offices have been purchased for student accommodation redevelopment. UKbased Scape Student Living has purchased 393 Swanson St, Melbourne and 1 La Trobe Street, Melbourne while local provider Blue Sky has recently gained development approval for a 93- student bed development at -50 La Trobe Street, Melbourne. Similar to the growth of student accommodation development, the falling Australian dollar has also led to increased demand for hotel rooms. According to the Australian Bureau of Statistics, 93,00 short-term visitors arrived in June 01, the largest onemonth total on record. Acquisitions for hotel and residential/hotel redevelopment have been focused within the CBD, however with Asian Pacific Group s inclusion of 0 hotel suites within their Whitehorse Towers mixed use redevelopment, 3-50 Whitehorse Road, Box Hill, shows hotel development broadening beyond the CBD. The recent trend of tenants relocating into the CBD, coupled with the acceptance of the medium density in prime urban locations, has led to the redevelopment of a number of former offices, particularly in the suburban office market. Having previously been occupied by SKM, who relocated into the CBD, 590 Orrong Road, Armadale is currently being redeveloped into a 50-dwelling residential project, while Engineers Australia s former offices in North Melbourne is earmarked for future residential development. Investor demand for redevelopment opportunities also remains intense. Since 013, offices purchased for a change of use across Melbourne s office markets have surpassed $500 million each year. In 01 to date, $13.9 million of Melbourne offices have been purchased for redevelopment purposes. Conversion versus Redevelopment The vast majority of offices being withdrawn between 01 and 019 will be redeveloped (9%) compared to conversion (3%). All of those offices identified for conversion are located within the CBD office market. FIGURE Melbourne Reason for Withdrawal CBD, Southbank, St Kilda Rd & Suburbs Withdrawals HOTEL 1% STUDENT ACCOM RESIDENTIAL RESIDENTIAL/HOTEL OTHER/NOT DETERMINED Future % % % 9% Beyond 019, despite the above average levels of apartment supply, the changing preferences of younger generations coupled with the rising cost of housing is expected to maintain the momentum of the redevelopment of former offices. A further,519m of office space across the CBD, St Kilda Road, Southbank and Suburban office markets has been identified for potential conversion or redevelopment. Of interest, the greatest amount of office space identified for future redevelopment is located in the Suburban office market which totaled 131,53m or % of all potential withdrawals beyond 019. Office stock in St Kilda Road is forecast to continue to decline with a further 0,05m earmarked for potential redevelopment. TABLE Major Office Withdrawals Melbourne Southbank & Suburban Office Markets Address Precinct NLA (m²) Owner/Developer Reason/Expected Reason for Withdrawal Date 5-1 City Rd Southbank 1,00 Salvo Property Group Jun-1 39 Park St, South Melbourne Southbank,05 Milbex Jun-1 - Claremont St, South Yarra Suburban 1,0 Glorious Sun Dec-1 0 Whitehorse Rd, Box Hill Suburban 1,35 Longriver Group Dec-1 1 Pelham St, Carlton Suburban 1,30 Campus Estates Student Accommodation Redevelopment Dec Bank St, South Melbourne Suburban,99 Guangdong Carrington Residential/Hotel Redevelopment Dec-1 9- Prospect St, Box Hill Suburban,5 Quantum Group Jun-1 1- Claremont St, South Yarra Suburban 1,9 Salcon Development Dec-1

9 PERMANENT OFFICE STOCK WITHDRAWALS SEPT 01 RESEARCH BRISBANE Within the Brisbane CBD and Fringe office markets 01 is expected to be the stand-out year for the permanent withdrawal of obsolete office stock. After the permanent withdrawal of 5,5m² over the course of 015 a total of 9,03m² is expected to be withdrawn from the office market during 01, the majority of which (,01m²) will come from the CBD. While further withdrawals of 35,33m² are expected to be removed from the market during 01, there are relatively fewer future opportunities. 3 Queen Street was purchased in 01 by Cbus for $9 million. In June the site received final development approval (after an appeal in the Planning & Environment court) for a 0 level residential tower of units. FIGURE Brisbane Office Stock Withdrawal ( 000m²) CBD and Fringe Permanent 0 projected Potential CBD FRINGE As a response to the relatively higher total vacancy rate within the CBD of 1.9% the recent total permanent withdrawals of office stock of 3,m² during 01 and 015 represented only 1.5% of the current office stock. At this stage the forecast for withdrawals in the Brisbane CBD totals 5,30m² with a further 31,90m² of potential withdrawals. The expected withdrawals between 01 and 019 equates to 5.% of the current CBD total stock. The peak in CBD withdrawals is aligned with the demolition of older former State Government occupied buildings to create the Queens Wharf development site. With Destination Brisbane, a consortium between Echo Entertainment, Chow Tai Fook Enterprises and Far East Consortium, awarded the development rights these buildings are expected to be withdrawn once 1 William Street is completed and the State Government relocates staff into the new building. Permanent withdrawals of office stock in the Brisbane Fringe market accelerated during 015, increasing to 5,3m², up from 3,93m² during 01 as the pressure for residential development sites TABLE 5 Recent Major Sales Activity Brisbane - Conversion or Demolition Assets Address Precinct Price $ mil Bld NLA m² $/m² NLA Site m² $/m² Site WALE yrs Vendor Purchaser Sale Date 5 Sylvan Rd, Toowong Fringe 9.50 #,919 3,55, 3,59 VP Uniting Church Private Developer Jun 1 0 Wharf St, Spring Hill Fringe 1. #,95,53,33, 1.0 Private Offshore Investor Land & Homes Group Feb 1 55 Queen St~ CBD.00 # 13,00,09,35 9,9 1.5 GPT (GWOF) Undisclosed Oct 15 3 Hope St, South Brisbane Fringe 9.59 # 0 1,1,5 VP Aria Property Group Mirvac Sep Wickham Tce, Fort Valley Fringe 15.50#,51,10, 5,5 VP RSL Care Cornerstone Properties Jun 15 5 Jephson St, Toowong Fringe.50 # 00* 1,,0 5,53 VP Shop Distributive & Allied Employees Property Solutions JV Chinwayland Jun Wharf St, Spring Hill Fringe 1.0 #, 5,09 1,35,95 VP Silverstone Developments Cbus Property Jun 15 ^ likely conversion # likely demolition *office area only ~under contract settlement August 01 9

10 BRISBANE CBD WITHDRAWALS Albert St 9,m² Frasers Hospitality Q1 01 Hotel Conversion George St,0m² office NLA Toga Far East Hotels Q 01 Hotel Conversion 33 Adelaide St 1,00m² Valparaiso Capital Q1 015 Student Accommodation Conversion 0 Margaret St 3,50m² Aspial Corporation Q Queen St 5,50m² Cbus Property Q George St -,90m² State Government Q 01/ Q1 01 Integrated Resort/Residential redevelopment (Queens Wharf) 0 George St 1,150m² State Government Q 01/ Q1 01 Integrated Resort/Residential redevelopment (Queens Wharf) 1-13 Charlotte St 13,395m² Cromwell Property Group 01 Potential Student Accomm. Conversion/ Redevelopment 1- Mary St 13,5m² Cromwell Property Group 01 Potential Student Accomm. Conversion/ Redevelopment Mary St approved 35,000m² Sam Chong Hotel Development underway 30 Albert St approved 5,000m² Aspial Corporation Residential Development underway 550 Queen St approved 1,500m² Qualitas/Consolidate Properties Residential Development underway Office Stock Withdrawn Expected Withdrawals 31 Adelaide St 5,0m² MRL Capital Stage 1 Q 01 1,09m² Stage Q 01,3m² Student Accommodation Conversion 5 William St 1,00m² State Government Q 01/ Q1 01 Integrated Resort/Residential redevelopment (Queens Wharf) North Quay 3,31m² RNP For sale as redevelopment site 30 Herschel St,53m² RNP Building currently vacant 0 Ann Street 1,9m² Wee Hur Holdings Potential redevelopment Potential Withdrawal Targets Development site converted from an office scheme to alternate use Source of Map: Knight Frank As at August 01 Office NLA quoted.

11 PERMANENT OFFICE STOCK WITHDRAWALS SEPT 01 RESEARCH grew. Despite no withdrawals of stock during the first half of 01, the Fringe market is expected to record some 0,9m² of withdrawals over the 01 calendar year. With demand for residential sites easing and little urgency in the office development market, permanent withdrawals are expected to ease in 01, below 9,000m², with a further,3m² identified in potential future withdrawals without a formal timeframe. Drivers The permanent withdrawal of stock in Brisbane commercial markets has largely been driven by the relatively softer office market conditions, particularly in the secondary markets with high vacancy in both the CBD (1.%) and Fringe (1.%) markets. In addition improvements to the tourism market has continued to support hotel or mixed use residential/hotel developments with visitor nights to Brisbane increasing by % over the year to March 01. Boosted by the lower AUD international visitors to Brisbane have increased by % over the same period. Student accommodation accounted for % of withdrawals during 01 & 015 and with the potential for three new construction projects in the CBD, underpinned by the 5,000 international students studying in Brisbane, there will continue to be some building conversion or redevelopment activity. The Brisbane FIGURE Brisbane Reason for Withdrawal CBD & Fringe Withdrawals % 5% 13% STUDENT ACCOM RESIDENTIAL RESIDENTIAL/HOTEL OFFICE OTHER/NOT DETERMINED % 1% City Council s infrastructure charges reductions for student accommodation will remain in place until June 01 and this is expected to induce further proposals. Expected withdrawals are dominated by residential or residential/hotel schemes accounting for 3% of withdrawals, underpinned by the Queens Wharf Project to be constructed on the site of obsolete former State Government office buildings. Conversion versus Redevelopment While the initial withdrawals within the CBD were for conversion ie George St and 33 Adelaide St, in the future the Developer incentives have made student accommodation projects viable, where previously they would not have been financially feasible majority of withdrawals are expected to be for redevelopment. The expected withdrawals across the next four years are 9% for demolition and redevelopment and only % for conversion of the existing building into a new use. Future The calendar year of 01 is expected to be the peak year for permanent office stock withdrawals across the Brisbane commercial markets, dominated by the CBD. With some heat coming out of the residential development market, Fringe withdrawals are expected to slow. With sustained vacancy in the secondary market, few greenfield sites remaining and a limited pipeline of future office developments, additional withdrawals will continue to flow through the market in the medium term. TABLE Major Office Withdrawals Brisbane Fringe Address Precinct NLA (m²) Owner/Developer Reason/Expected Reason for Withdrawal Date 15 Wharf St Spring Hill, Cbus Property Jun Wharf St Spring Hill,13 MPG Developments Dec Wickham St Fortitude Valley 1,31 Private Investor Dec St Paul s Tce Urban Renewal,00 Abcor Group Office or Dec 15 5 Sylvan Rd Toowong,919 Undisclosed Dec 15 0 Wharf St Spring Hill,95 Land & Homes Group Residential or Hotel Redevelopment Dec 1 5 Donkin St Inner South,0 R & F Properties Dec Wickham Tce Spring Hill,51 Cornerstone Properties tba Kings Row Bld 1 Milton,09 Investa ICPF (For Sale) tba 50-5 Little Edward St Spring Hill,9 Under Contract tba

12 COMMERCIAL BRIEFING For the latest news, views and analysis of the commercial property market, visit knightfrankblog.com/commercial-briefing/ RESEARCH Matt Whitby Group Director Head of Research & Consulting Matt.Whitby@au.knightfrank.com Jennelle Wilson Senior Director Research QLD Jennelle.Wilson@au.knightfrank.com Richard Jenkins Director Research Vic Richard.Jenkins@au.knightfrank.com Alex Pham Senior Research Manager NSW Alex.Pham@au.knightfrank.com Michelle Ciesielski Director Residential Research Michelle.Ciesielski@au.knightfrank.com Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. RECENT MARKET-LEADING RESEARCH PUBLICATIONS Melbourne s Coworking Insight July 01 Australian Student Accommodation Insight April 01 Australian Residential Review August 01 The Wealth Report 01 KEY SALES CONTACTS Paul Henley Head of Commercial Sales Australia Paul.Henley@au.knightfrank.com James Parry Head of Institutional Sales Australia James.Parry@au.knightfrank.com Danny Clark Head of Commercial Sales Vic Danny.Clark@au.knightfrank.com John Bowie Wilson Head of Commercial Sales NSW John.BowieWilson@au.knightfrank.com Justin Bond Senior Director Institutional Sales +1 3 Justin.Bond@au.knightfrank.com KEY LEASING CONTACTS John Preece Head of Office Agency Australia John.Preece@au.knightfrank.com Hamish Sutherland Senior Director, Head of Office Leasing Vic Hamish.Sutherland@au.knightfrank.com Campbell Tait Senior Director Office Leasing +1 3 Campbell.Tait@au.knightfrank.com Knight Frank Research Reports are available at KnightFrank.com.au/Research Important Notice Knight Frank Australia Pty Ltd 01 This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank Australia Pty Ltd for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank Australia Pty Ltd in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank Australia Pty Ltd to the form and content within which it appears.