Research and Forecast Report Accelerating success. CBD OFFICE Second Half 2017 1
EXPERTS IN PROPERTY DATA & INSIGHTS Colliers Edge is a subscription service developed by our in-house property research specialists, drawing on the expertise of our national network of operators. DEEPER INSIGHTS Largest data set on market today LIMITLESS SUPPORT Analyst not operators FAIRER PRICING Tailored to your needs Want better insights, faster? Talk to a Colliers Edge expert today Anneke Thompson National Director Research +61 412 581 647 anneke.thompson@colliers.com colliers.com.au/colliersedge Accelerating success.
CONTENTS CBD Office snapshot 4 National overview 5 CBD office market snapshots Sydney 6 Melbourne 9 Brisbane 12 Perth 15 Adelaide 17 Canberra 19 Auckland 21 Our experience CBD office 22 CBD Office Research & Forecast Report Second Half 2017 3
CBD OFFICE SNAPSHOT VACANCY RATE NET SUPPLY (SQM) NET FACE RENTS ($/SQM) INCENTIVES NET EFFECTIVE RENTS ($/SQM) YIELD Current July 2018 Year to July 2017 Year to July 2018 Current July 2018 Current July 2018 Current July 2018 Current July 2018 SYDNEY 5.9% 5.1% Premium 9.5% 7.4% $1,015 $1,119 22% 20% $751 $858 5.2% 4.6% 5,397-52,242 A Grade 3.6% 3.4% $746 $823 21% 19% $560 $639 5.8% 5.3% B Grade 5.8% 5.6% $628 $686 22% 19% $463 $531 6.1% 5.9% MELBOURNE 6.5% 4.5% Premium 6.1% 4.0% $693 $750 28% 26% $499 $552 4.9% 4.5% 109,640-6,948 A Grade 6.1% 3.1% $528 $567 30% 26% $371 $420 5.4% 5.1% B Grade 6.6% 6.1% $385 $403 29% 28% $273 $291 6.0% 5.6% BRISBANE 15.7% 14.1% Premium 11.8% 9.2% $672 $678 38% 37% $361 $371 5.6% 5.3% 17,847-22,401 A Grade 11.6% 10.7% $558 $562 38% 37% $294 $295 6.5% 5.9% B Grade 20.0% 14.8% $451 $450 40% 39% $221 $225 7.6% 7.3% PERTH 21.1% 21.4% Premium 11.7% 16.3% $700 $700 48% 46% $362 $380 6.4% 6.5% 820 55,000 A Grade 19.4% 18.5% $560 $560 53% 53% $266 $266 7.1% 7.2% B Grade 30.8% 30.6% $383 $379 48% 48% $201 $199 7.6% 7.9% ADELAIDE 16.1% 15.5% Premium 10.2% 9.1% $397 $402 37% 35% $250 $261 6.6% 6.6% 18,768-3,700 A Grade 14.1% 12.4% $381 $386 37% 35% $244 $251 7.1% 7.0% B Grade 16.7% 15.3% $320 $324 38% 38% $198 $201 7.8% 7.8% CANBERRA 9.5% 10.5% A Grade 3.2% 4.0% -2,442 4,035 $368 $370 23% 20% $267 $281 6.0% 5.9% B Grade 14.8% 15.9% $285 $284 28% 23% $180 $194 8.3% 7.7% *Net incentives quoted for Melbourne and Perth. Gross incentives for all other markets.
NATIONAL OVERVIEW By Anneke Thompson National Director Research anneke.thompson@colliers.com The perfect storm: supply hiatus and strong demand continues to push rental growth in Sydney & Melbourne The simplest of all economic theories, the one most first year economic students are taught on day one, is the theory of supply and demand. Today we can witness the Sydney and Melbourne CBD office markets as a perfect real-life example of this phenomenon. Both NSW and Victoria are experiencing extraordinary population growth fuelled by migration. According to the ABS, 72,013 local and overseas migrants moved to NSW, and an unprecedented 92,038 migrants moved to Victoria in 2016. These figures are 38 per cent and 45 per cent respectively above the ten year average migration levels for these two states. This flow of migrants is contributing to strong white collar job creation in both capital cities the demand side of our equation. The supply side, however, is not keeping up. The Sydney CBD office market only grew by 4,314sqm over the last 12 months. This is a mere 0.1 per cent of total CBD supply. Melbourne had far stronger supply, growing by 109,640sqm over the past year, although all of this and more was absorbed. Total vacant space reduced from 313,311sqm in July 2016, to 294,562 in July 2017. Supply for the next twelve months is even more ominous. Colliers International is forecasting the Sydney CBD office market to contract by 50,000sqm over the year to July 2018, and the Melbourne CBD to reduce by 7,000sqm. This, at a time when Deloittes Access Economics expects an additional 5,600 office based workers to require space in the Sydney CBD, and 6,121 workers in the Melbourne CBD. Based on a conservative estimate of 11sqm per office employee, this is about 60,000sqm of demand in Sydney and about 65,000sqm of demand in Melbourne. In a climate of reducing availability of stock, the simple law of supply and demand tells us that the result must be an increase in prices. Over the year to June 2017, prime grade face rents grew by 7.8 per cent in Sydney, and 14 per cent in Melbourne. While these growth rates are well above ten year averages (4.7 per cent in Sydney and 4.3 per cent in Melbourne), our outlook for growth is over the next 12 months is also very strong. Over the year to June 2018, we expect face rent growth of 10.3 per cent in Sydney and 13 per cent in Melbourne. This growth will have implications for landlords and occupiers. It is next year when we expect to see the bulk of face rent growth, before new supply begins to hit the market in 2019. Beyond that time, we see growth returning to more normalised levels, as supply and demand of office space rebalances. In the other CBD markets of Australia, conditions appear to be slowly rebalancing. Brisbane saw an increase in their vacancy rate over the six months to July 2017, however, there have been some green shoots of a leasing recovery in the CBD market. Enquiry volumes across the Brisbane CBD leasing market have increased 48 per cent for the first half of 2017, compared to the second half 2016 and there has been strong enquiry from tenants seeking space 1,000 to 3,000sqm. In Perth, the market appears to be bottoming. CBD office vacancy is 21.1 per cent, down from 22.5 per cent in January 2017. The positive net absorption was mostly attributed to take up in premium grade space, which was assisted by high market incentives. Adelaide recorded its highest net absorption figure since January 2014. Total market vacancy is still elevated at 16.1 per cent, down slightly from 16.2 per cent in January 2017. Despite the prevailing high vacancy rate, there are few large contiguous spaces available, and secondary vacancy remains high at 17.8 per cent. A similar story is a feature in Canberra, where the lack of contiguous space in the market is impacting tenants seeking larger floorplates of 2,000sqm or more and, as a result, A grade face rents are expected to increase by 12.5 per cent by 2020. CBD Office Research & Forecast Report Second Half 2017 5
Research & Forecast Report SYDNEY CBD Office Second Half 2017 By Kristina Mastrullo Associate Director Research kristina.mastrullo@colliers.com MARKET HIGHLIGHTS Heightened investment activity contributed to further yield compression with this trend likely to continue into H2 2017, as new generation office buildings transact A grade yields have compressed the most, at 25bps over H1 2017 Competitive tension is still apparent in the leasing market for quality, whole floor space, while more balanced negotiation between tenant and landlord is returning to the suite market. Rental growth is still trending above historical averages, with average premium grade net face rents now exceeding $1,000 per sqm. Investment market Activity intensifies Recent investment activity, particularly in Q2 2017, produced some impressive results, causing further yield compression across the market. Several big-ticket sales occurred: QIC s MLC a 50 per cent stake purchased by Dexus (of which 25 per cent was purchased by their wholesale fund, DWOF) for a reported $722.6m; Kumpulan Wang Persaraan s (KWAP) 20 Bridge Street - the most notable for Q2 2017, purchased for $335m by a private investor, achieving a passing initial yield of 3.93 per cent; Propertylink s 320 Pitt Street purchased for $275m by ARA Asset Management and Straits Real Estate; Roxy-Pacific s 59 Goulburn Street purchased for $158m by Fortius Funds; and, QIC s 275 George Street - purchased for $82.75m by John Holland Group. Brookfield is still set to sell two 25 per cent stakes in their Wynyard Place project, retaining the development rights. The Sydney CBD continues to encounter a declining number of office transactions, with only 10 sales occurring in H1 2017, lower than H2 2016 and the previous corresponding period. These lower than normal sales volumes, however, have occurred in an environment of high demand, and, as a result, average yields compressed across all grades in 1H 2017. Colliers have recorded a reduction of 19bps in premium grade, 25bps for A grade and 20bps in B grade average reversionary yields. Despite yields already trending towards historical lows, the 20-year prime average spread of 177 bps to the risk-free rate suggests there is still room for further compression, given that the current spread is 299 bps. The ongoing strength of the Sydney office market, underpinned by a forecast shortage of short-term supply, is likely to encourage domestic and offshore interest moving forward, stimulating more impending sales throughout the second half of the year. This will likely occur with the sale of 50 Pitt Street, 10 Spring Street which are on the market and 20 Hunter St, which is soon to be for sale, along with AMP Capital preparing to bring a minority stake in the office component of its Quay Quarter Tower development to market. June 2017 Premium A Grade B Grade Average Yields Leasing market The return of sublease space? 5.18% 5.80% 6.10% Sublease space may make a return, as tenants seeking to lock in future growth opportunities by space banking today in the period of reducing supply. This is occurring with some confidence that sublease space will be offloaded quickly in the current market climate, which hasn t typically been experienced, meaning tenant costs for surplus space can be offset as they take control of their growth. 6
Business expansion remains a contributor of low vacancy and increasing rents, as competition for whole floor tenancies representing value (quality fitouts, desirable location, sub-$1,000 per sqm) remains highly sought after, with tenant urgency, still apparent. However, competitive tension from tenants seeking suites continues to taper off and more balanced negotiation between tenant and landlord is returning, given the reduction in the level of withdrawals and tenant displacements. It is also expected that should the evolution of flexible space and floor space efficiencies continue, Floor Space Ratios (FSRs) may tighten, offsetting the need for more space by some occupiers. White collar employment growth is forecast to continue in the second half of this year with it nearly doubling from the levels seen over the first half, to an additional 4,275 workers. This will potentially add up to 60,000sqm of demand to the leasing market. Rental growth still strong Quarterly net effective rental growth is still trending above 10yr historical averages (1.4 per centqoq). Premium grade grew 2.7 per cent, with A grade attracting the softest increase at 1.9 per cent and B grade increasing at 2.0 per cent. For the 12 months to June 2017, A grade net effective rents recorded the strongest growth, with B grade experiencing the weakest, although still strong relative to previous periods. June 2017 Premium A Grade B Grade Total Average Number of Sydney CBD Office Transactions vs Average Yields 35 30 25 20 15 10 5 0 2007 H1 2007 H2 2008 H1 2008 H2 2009 H1 2009 H2 2010 H1 2010 H2 2011 H1 2011 H2 2012 H1 2012 H2 2013 H1 2013 H2 2014 H1 2014 H2 2015 H1 2015 H2 2016 H1 2016 H2 2017 H1 /RCA Number of Office Transactions Average Yield (RHS) Sydney CBD White Collar Employment Projections persons 335,000 330,000 325,000 320,000 315,000 310,000 305,000 300,000 295,000 290,000 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 White Collar Employment Projection Source: Deloitte Access Economics Net Supply vs Vacancy Rate 150,000 Change in White Collar Employment (RHS) Forecast 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 12% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% persons Average YoY Net Effective Rental Growth 17.7% 18.5% 15.3% 17.2% Net Supply (sqm) 100,000 50,000-10% 8% 6% 4% Vacancy Rate Premium and A grade incentives reduced by three percentage points over the half, settling at 22 per cent and 21 per cent respectively, with B grade reducing two percentage points to 22 per cent. Over the twelve months to June 2017, incentives have declined 5 percentage points across all grades. This slow-down in the reduction in incentives has contributed to a weaker net effective growth rate, relative to previous periods. -50,000-100,000 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Net Supply Vacancy /Property Council of Australia Net Face Rents vs Net Effective Rents (all grades) $1,200 Forecast 2% 0% Average premium net face rents increased 3.7 per cent for the $1,000 half, causing average rents to reach $1,015 per sqm, representing $800 a milestone for the Sydney market, as we have never before $/sqm $600 recorded face rents over $1,000 per sqm. However, there has $400 been ample transactional evidence of above $1,000 per sqm rents $200 for some time. $- A grade net face rents recorded marginally stronger growth, increasing 3.8 per cent over the half with B Grade growth the weakest, increasing 2.5 per cent. Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Average Net Face Rents Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Average Net Effective Rents Jun-18 Jun-19 Jun-20 Jun-21 Jun-22 Jun-23 CBD Office Research & Forecast Report Second Half 2017 7
Strong demand drives a tighter market Vacancy has been reported at 5.9 per cent for the July 2017 period according to the PCA, falling from 6.2 per cent in January 2017, due to strong demand (+22,216sqm) and weak net supply (+7,713sqm) for H1 2017. Withdrawals are expected to increase to over 99,000sqm in the second half of 2017, tipping net supply back into negative territory, at an estimated -40,000sqm. Net supply will remain negative for the subsequent two periods (12 months) as withdrawals exceed supply, totalling over -23,000sqm, likely to cause a reduction in total market vacancy, which is anticipated to achieve a floor of 5.0 per cent by July 2019. As Sydney CBD enters its next supply cycle (2020-2022), vacancy is expected to rise to 6.9 per cent by July 2022. This elevation is largely attributed to strong, positive net supply hitting the market. June 2017 Total Market Premium A Grade B Grade Vacancy 5.9% 9.5% 3.6% 5.8% Source: Property Council of Australia Effective rents continue to strengthen through to next supply cycle Average net face rental growth is expected to increase by 7.7 per cent YoY over the three years to Jun20 as a lack of new supply and ongoing withdrawals place downward pressure on vacancy. As the market tightens, incentives are expected to reach their floor by Dec18 (at a market average of 18 per cent across all grades) with average net effective rents forecast to increase by 9.5 per cent YoY for all grades over the next three years to Jun20. Sydney CBD will then enter a period of above average net supply (10yr historical average of +16,000sqm) as major projects are delivered such as 60 Martin Place, Quay Quarter Tower and Wynyard Place. Over four periods between 2020 and 2022, net supply will average +56,000 sqm per 6mth period (totalling +226,000sqm), increasing vacancy to 6.9 per cent by July 2022. This marks the period where negative net effective rental growth is expected. While face rents are anticipated to experience positive, albeit weak, growth during this period, (averaging +0.4 QoQ across all grades), net effective rents are forecast to record an average quarterly reduction of -0.2 per cent for premium and A grade and -1.0 per cent for B grade space over 2021 and 2022, as incentives rise. 200 George Street, Sydney Valued on behalf of AMP Capital Investors Limited 8
Research & Forecast Report MELBOURNE CBD Office Second Half 2017 By Anika Wong Manager Research anika.wong@colliers.com MARKET HIGHLIGHTS Strong demand resulting in above average face and effective rental growth Vacancy rate forecast to decline to 4.3 per cent by July 2019 Prime and secondary yields have compressed, yet to reach their trough Leasing market Effective rents have strengthen whilst incentives remain stable The Melbourne CBD office market continues to perform well for landlords. Prime effective rents climbed by their strongest rate since 2011, underpinned by strong face rental growth over the year. Premium grade assets experienced the highest net face growth rates, growing 18 per cent over the year. A and B grade net face rents also grew annually at 10 per cent and 8 per cent respectively. Melbourne occupiers appetite for prime CBD space appears to remain high, with reducing levels of prime stock available, placing further pressure on tenants seeking over 5,000sqm. Looking forward, we expect average net face rents for prime and secondary assets to rise by 13 per cent and 8 per cent respectively in the 12 months to June 2018. Net effective rents also increased. Both prime and secondary offices experienced double digit YoY growth at 16 per cent and 13 per cent respectively. Despite the tighter rental market, incentives are still relatively stable as landlords are pushing for higher face rental growth and offering attractive incentives towards fit out contributions to encourage tenant moves. That being said, incentives in the CBD have remained elevated over the last three years due to competition amongst a number of new towers competing for anchor tenants where incentives were circa 40 per cent. Now that these towers are close to filled, there is less pressure on landlords and developers to compete with this level of incentive. In addition, relatively low levels of prime grade vacant stock, in combination with the lack of new supply in the CBD over the next 18 months, will continue to place downward pressure on incentives. As a result, we are forecasting incentives to start their descent downwards to 24 per cent, 25 per cent and 26 per cent by late 2018 for Premium, A grade and B grade respectively. As incentives decline, effective rents will continue to grow, with double digit growth forecast across all grades over 2018. Strong office demand Over the first half of 2017, Melbourne experienced the strongest net absorption across the nation of 128,389sqm with net supply of 109,640sqm over the same period. Over the next 12 months, there is over 5,800sqm of refurbished space and over 54,000sqm of backfill space due to be added to the market. The majority of this backfill space is 20,000sqm at 2 Lonsdale Street, which has already been leased. Vacancy as at July 2017 is 6.5 per cent in line with the long term average of 6.6 per cent, having fallen from 7.1 per cent at the same time in 2016. With an immediate shortage of supply a concern for the CBD leading up to the next supply cycle in 2018-2019, the prevailing high demand, low supply environment provides room for the vacancy rate to fall below 4.5 per cent in the second half of 2019. We expect vacancy levels to move towards 7.0 per cent by mid-2020, as more buildings complete. First wave of supply to be in Docklands New supply of office developments over the first wave of the supply cycle is concentrated in Docklands, with the next new development due for completion in the first half of 2018 being 664 Collins Street (26,000sqm) which has major space commitments by Pitcher Partners (9,768sqm) and Exxon Mobil (7,100sqm). This development will be followed by One Melbourne Quarter (25,000sqm), anticipated to be 100 per cent committed prior to practical completion. The CBD Office Research & Forecast Report Second Half 2017 9
Average Net Effective Rents traditional CBD grid won t see any new supply until the second $700 $600 Forecast half of 2019, when 271 Spring St (fully pre-committed by Australian Unity) and 447 Collins Street are due to complete. $500 $400 $300 Construction has commenced at 80 Collins Street South Tower and is due to complete in 2020.The Collins Street landmark is $200 currently undergoing mixed-use refurbishment of 43,000sqm $100 over 39 levels including a boutique hotel as part of the delivery of $0 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Premium A Grade B Grade Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 the new South Tower. Owners QIC secured Macquarie Bank as anchor tenant, committing across five (5) floors as they relocate from across the road at 101 Collins Street. Melbourne CBD Net Absorption vs Total Vacancy 250,000 Forecast 200,000 150,000 100,000 50,000 - -50,000 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 10% 8% 6% 4% 2% 0% -2% Businesses looking for space for the remainder of 2017 and 2018 will find their options severely constrained, given the lack of supply. Moving forward, net absorption will remain positive (for the most part) albeit weak, as supply remains thin between 2017 and 2019. Leasing flexibility takes form - tenants become comfortable and more open toward co-working options Supply by Type 200000 150000 100000 50000 6 mth Net Absorption Vacancy Rate (%) One of the biggest shifts in workplace strategies has been the improved flexibility offering to occupiers. Landlords now recognise the benefits of flexible work space and are re-strategising their accommodation across their portfolios. Global leaders in flexible office space, including WeWork, IWG, Regus, The Commons and Hub Australia have led the charge in co-working space and has since shifted the traditional workplace model. Through utilising existing space and designing collaborative work-spaces, landlords can effectively sub-let office environments. 0 2017 1H 2017 2H 2018 1H 2018 2H 2019 1H 2019 2H 2020 1H 2020 2H 2021 1H Full Refurb Partial Refurb Mooted Backfill New Dev Average Yields 10% Forecast 9% 8% 7% 6% 5% 4% 3% Jun-97 Aug-98 Oct-99 Dec-00 Feb-02 Apr-03 Jun-04 Aug-05 Oct-06 Dec-07 Feb-09 Apr-10 Jun-11 Aug-12 Oct-13 Dec-14 Feb-16 Apr-17 Jun-18 Aug-19 PREMIUM A GRADE B GRADE Landlords are also maximising opportunities by utilising underused spaces (such as traditional layouts for meeting rooms) offering third space lease. Dexus Place at 360 Collins Street is a prime example for utilising third space for collaborating, meeting and social needs. More recently, ISPT rolled out flexible work-space in their portfolio, including Casselden Place at 2 Lonsdale Street, which is currently undergoing an internal upgrade, including investing in new technology for third spaces for tenants to hire out. Another market leader, Space&Co by GPT Group, offers two flexible co-working spaces for small to medium businesses and corporate teams at 530 Collins Street and Melbourne Central Tower. In order to meet the needs of smaller tenants from who we are currently seeing strong demand - landlords are offering quality accommodation and more efficient space through subdividing floors into multiple office suites. This accommodates the demands of smaller tenancies less than 500sqm. Face rent premiums of up to 15 to 20 per cent can be achieved with this strategy. 10
Investment market Global capital flows continue and so does yield compression Investment volumes in Melbourne CBD over the 2017 financial year reached a total of $1.8 billion lower than the previous year at $2.8 billion. Offshore buyers outperformed domestic bidders with over $1.02 billion in total office asset purchases. On the sell side, local institutional investors were most active, representing 80 per cent of the deals exchanged over the course of the year. Constrained supply and ongoing high demand from offshore capital has seen yields tighten across all asset classes, recording the largest quarterly and annual compression in average yields nationally at 30bps and 57bps respectively. Melbourne has not experienced this level of compression since September 2007. Yields for Premium grade fell 38 basis points, A grade fell 45 basis points and B grade fell 86 basis points over the year to June 2017, with yields now sitting at 4.92 per cent, 5.38 per cent and 6.00 per cent respectively. One of the largest sale for the financial year was 839 Collins Street sold to Invesco and Challenger for $423 million on a 5.25 per cent yield. The spread between the risk-free rate and prime assets are sitting at 224 basis points (as at June 2017) suggesting there is still room for further compression over the current cycle, given the historical average spread is 137 basis points. This translated through to capital values recording a quarterly growth rate of 8 per cent and annual movement of 22 percent, making Melbourne a clear outperformer across the major CBDs. 477 Collins Street, Melbourne Sold on behalf of Mirvac Group CBD Office Research & Forecast Report Second Half 2017 11
Research & Forecast Report BRISBANE CBD Office Second Half 2017 By Helen Swanson Manager Research helen.swanson@colliers.com MARKET HIGHLIGHTS Green shoots of a leasing recovery appearing across the CBD with good level of premium and A grade office deals completed over first half of 2017 Positive news for the sector as QSuper signs Heads of Agreement with Shayher Group to negotiate a lease for its office building at 300 George Street, due for completion mid 2019 Vacancy rate forecast to decline to 13-14 per cent by January 2019 Leasing market Green shoots appearing for CBD office leasing market According to the PCA, the Brisbane CBD office vacancy rate increased from 15.3 per cent in January 2017 to sit at 15.7 per cent as at July 2017. This represented an increase in vacancy over the six-month period of 7,969sqm. This vacancy was attributed to a number of smaller tenants along with a couple of larger tenants vacating space. Recent activity over the half saw movement by tenants, such as: State Government, vacating 14,429 sqm at Primary Industries House; Origin, vacating 5,400 sqm at Waterfront Place; GHD, taking up 3,300 sqm at King George Central; and AAT, taking up 2,422 sqm at 295 Ann Street. Despite vacancy increasing over the six months to July 2017, there have been some green shoots of a leasing recovery appearing across the CBD. For instance, there continues to be a flight to quality, with a good volume of Premium and A grade office deals 1,000sqm plus being agreed, particularly in the Golden Triangle precinct. Additionally, enquiry volumes across the Brisbane CBD leasing market have increased 48 per cent for the first half of 2017, compared to the second half 2016. There has been strong enquiry particularly from tenants seeking space 1,000 to 3,000sqm. Reflecting this recent trend, Premium grade and A grade vacancy declined 0.4 and 0.3 percentage points respectively, whilst secondary grade, recorded an increase in vacancy of 1.2 percentage points. After Origin s commitment to 180 Ann Street in Q1, the big news story for Q2 is that QSuper has announced that it has put the Shayher Group s CBD 42-level office tower, 300 George Street in the frame for its new home. QSuper has entered into a non-binding and non-exclusive Heads of Agreement with Shayher to negotiate circa 17,000sqm within the tower, which is under construction. The super fund will now work through a commercial-in-confidence process to finalise the terms and conditions of any future move. Additionally, with white collar employment anticipated to record a 2.6 per cent increase for the 2018 calendar year, and no new major supply anticipated over the same timeframe, Brisbane s CBD office leasing market appears to have reached a turning point and is expected to rebound next year. Similarly, major infrastructure projects such as the Queens Wharf, Cross River Rail, Brisbane Dual Airport Runway and new Cruise Terminal project will help boost confidence across the city and lead to improved economic conditions. Based upon these factors, our forecasts show vacancy is likely to hover around 13-14 per cent by January 2019. Limited new supply but resurgence of players seeking office developments sites There were no new supply additions to enter the Brisbane CBD office market for the six months to July 2017, with 310 Ann Street, a refurbished tower likely to receive practical completion by Q3 2017. At present, there is no public announcement of a precommitment in the tower, however, it should be noted, there are 12
several groups currently assessing the building for their respective requirements. Thereafter, the only major office tower currently under construction is 300 George Street (spec build 46,000sqm) which is due for completion mid-2019. We are currently witnessing a resurgence of major office players back in the market for development sites, given the current stage in the office market, cycle, coupled with the softening inner city high density residential market. An example of this is Mirvac s contract to purchase 80 Ann Street, Brisbane from Wee Hur Holdings and Charter Hall (CPOF) and Investa (ICPF) purchasing three properties located at 366, 370 and 380 Queen Street, Brisbane (the Site ) for future commercial redevelopment. The only other projects which are currently at the mooted stage and subject to pre-commitment include ISPT s Regent Tower, Dexus 20 Creek Street, QIC s 62 Mary St and MPG s 143 Turbot Street. Investment market Big ticket sales take place in Brisbane s CBD $756.7 million of CBD office sales in Brisbane took place for 2017 to date (mid-july). The largest transaction to take place was 50 Ann Street (also known as The State Law Building) which sold for $145 million to listed property group PropertyLink. The group acquired the government-leased office in a partnership with investment bank Goldman Sachs. Propertylink acquired a 25 per cent share in the 25-storey office at 50 Ann Street through an expansion of its Propertylink Enhanced Partnership fund. The modern office is fully leased to the Queensland government, Brisbane CBD Vacancy Rate & Absorption 80,000 60,000 40,000 20,000 0-20,000-40,000-60,000-80,000 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 6 mth Net Absorption Vacancy Rate (%) Brisbane CBD Domestic vs Offshore Sales 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000,000 500,000,000 0 Jan-13 Jul-13 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Domestic Jan-14 Offshore Brisbane CBD Proportion Domestic vs Offshore Office Sales 100.00% 80.00% 60.00% 40.00% 20.00% 57% 43% 10% 90% 6% 94% 52% 48% 28% 72% 23% 77% Jul-14 9% 91% Jan-15 Jul-15 Jan-16 40% 60% Jul-16 Jan-17 25% 75% Jul-17 Jan-18 Jul-18 50% 50% Jan-19 Jul-19 43% 57% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 0.00% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Domestic Offshore but only has 3.5 years remaining on the lease. As a result, the purchase reflected a competitive yield of 7.03 per cent. The sale is a reflection of the demand for high-quality assets in a leasing market showing signs of recovery and experiencing a turnaround in demand. Other notable sales to take place this year also included 120 Edward Street, selling for $142.65 million and 545 Queen Street for $70.5 million, both in April, 40 Tank Street in May for $56.1 million and 160 Ann Street for $119.5 million in August. Offshore investors were active purchasers throughout 2016 and into 2017. Asian offshore investors dominated transactions across Brisbane with Keppel Capital, ARA Asset Management, AEP IM and Wee Hur Holdings Limited all active purchasers throughout 123 Eagle Street, Brisbane Leased on behalf of The GPT Group CBD Office Research & Forecast Report Second Half 2017 13
2016/17. Other non-asian offshore purchasers included La Salle Investment Management s purchase of 307 Queen Street (backed by CalSTRS) for $142.151 million, Hines purchase of 348 Edward Street (backed by King Street Capital) for $49 million, and Deutsche Asset and Wealth Management s purchase of 120 Edward Street. Looking forward, given the backdrop of limited supply currently under construction and unprecedented buy-side capital demand, market yields are likely to continue to tighten and are anticipated to breach 5.5 per cent in the core CBD market. As already evident, buy-side capital demand will continue to be dominated by offshore groups. Consequently, an increase in the number of owners wanting to capitalise on the unprecedented strength of buy-side capital demand from offshore, and divest out of their investments is likely to occur over the remainder of the year. Furthermore, whilst the Australian dollar remains an important consideration for most offshore groups, another driver is the substantial yield arbitrage on offer for core stock in Brisbane compared to Sydney and Melbourne. 505 St Pauls Terrace, Fortitude Valley Sold on behalf of ISPT Super Property 14
Research & Forecast Report PERTH CBD Office Second Half 2017 By Quyen Quach Senior Research Analyst Research quyen.quach@colliers.com MARKET HIGHLIGHTS Stability emerging as vacancy falls to 21.1 per cent Flight to quality and new resource sector investment spend driving net absorption Foreign investor demand remains robust with significant assets in due diligence Perth s CBD office market appears to be bottoming. CBD office vacancy is 21.1 per cent as at July 2017. This is down from 22.5 per cent, recorded by the PCA, in January 2017. WA s general business conditions remained soft over the past six months, translating to subdued white-collar employment growth and a continuation of weak net office space demand. Notwithstanding that, net absorption improved in Perth s CBD office market. Most of the absorption was for premium space, which was assisted by an increase in average incentives from 45 per cent in June 2016 to 48.25 per cent in June 2017. This absorption generated more stability in rental rates for higher grade space. On the other hand, a persistently competitive market drove secondary grade rents lower. According to the PCA, net absorption in the six months to July 2017 was 25,130sqm. This has underpinned optimism by some industry experts that we are at the bottom of the cycle. A significant proportion of absorption arose from tenants migrating from suburban and fringe locations, in addition to withdrawal of sub-lease space from the market. The flight to centrality by suburban and CBD fringe tenants continues to be the saving grace for the CBD office market. Recent enquiries have been dominated by small to mediumsized businesses seeking sub 500sqm tenancies, with a distinct preference for well-located quality premises. Existing CBD tenants are also continuing to upgrade office accommodation, and this flight to quality continues to shift the vacancy burden onto ageing A grade and secondary grade assets. Deloitte Access Economics (DAE) forecasts Perth and West Perth white-collar employment to grow 0.5 per cent in the six months to December 2017. They also expect further growth over the years ahead, albeit at very moderate rates of between 0.5 and 1.2 per cent. The only supply additions during the first half of 2017 came from the completion of Church House, a 1,150sqm building at 3 Pier Street. Woodside s 55,000sqm new headquarters has reached practical completion six months ahead of schedule, although this still means the supply figures are likely to fall into the 2018 vacancy update. Fitout of the internal space has commenced and Woodside is expected to fully occupy the premises during the second half 2018. Beyond this, approximately 256,850sqm of additional supply is mooted. The feasibility of the remaining projects would more likely be subject to an anchor tenant being enticed out of another building. Colliers notes again that Woodside s move to Capital Square in 2018 is expected to generate approximately 40,000sqm of premium grade backfill space at 240 St Georges Terrace. Hence, any new projects looking to dislodge a major tenant are likely to come up against strong competition from 240 St Georges Terrace, as it seeks to fill the hole left by Woodside and other recently departed tenants. Counter-cyclical and yield plays continue to feature in the Perth CBD office market. Early in 2017, GIC announced it had assigned mandates to Primewest and Charter Hall to invest some $800m in the Brisbane and Perth market. In July 2017, Primewest was reported to be progressing through due diligence on The Quadrant at 1 William Street, Perth. Foreign buyers and institutions have been the dominant players in the Perth CBD of late. Colliers International analysis recently revealed foreign buyers were behind 74 per cent of the total value of major CBD office building investments over the past two financial years to June 2017. CBD Office Research & Forecast Report Second Half 2017 15
There were no major CBD transactions settled in the six months to 30th June 2017. However, we understand there are three under contract and a number of assets seeking interest on and off-market. Potentially, these deals could convert to over $1 billion worth of transactions in 2017. Going forward there is renewed optimism in the CBD leasing market. Major iron ore producers have signalled new investment spend to increase or maintain output capacity, as the lifespan of existing iron ore projects declines. This has triggered renewed demand to accommodate design and engineering project space requirements. Growing demand for other commodities, such as lithium and gold, has also enhanced exploration opportunities and will assist in supporting investment spending. However, further improvements in vacancy are likely to be slow. Current Colliers International modelling indicates vacancy trending gradually lower over the next five years. We are forecasting vacancy to remain above 20 per cent through to the end of 2020, which is still well above the accepted 10 per cent equilibrium. Improvements in the vacancy rate are expected to halt the contraction in prime net effective rents, with gradually declining vacancy tempering competition. This may give landlords the impetus to begin a gradual scaling back of incentive offerings from current historic highs. But headwinds remain on the horizon. The 40,000sqm hole created by Woodside Petroleum s departure from 240 St Georges Terrace will need to be filled, and filled rather fast to mitigate further downward pressure on prime face rents. How this plays out will have ramifications for lower grade CBD assets, as the vacancy is expected to further extend the flight to quality phase. Furthermore, pending major lease expiries could deliver chunky vacancy to the market over the next 5 years. Perth CBD average net face rents Net Face Rent ($/m²) $1,000 Forecast $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Premium A Grade B Grade Perth A Grade yield range 10% 9% 8% 7% 6% 5% Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Perth CBD office supply, net absorption & vacancy rate 160,000 140,000 120,000 100,000 80,000 60,000 Forecast 21.4% 21.1% 40,000 8% 20,000 4% 32% 28% 24% 20% 16% 12% Vacancy Rate 0 0% -20,000-4% -40,000-8% Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Supply & Net Absorption (sqm) Jul-20 Jan-21 /PCA Total Supply 6 mth Net Absorption (sqm) Total Vacancy Rate (%) Perth CBD office supply Total office space (sqm) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 2015 Completed - 161,111sqm 2016 2017 2018 U/C - 55,000sqm Mooted - 256,832sqm 10,000 0 68 Milligan Street, Perth Leased on behalf of Soneel Pty Ltd 16
Research & Forecast Report ADELAIDE CBD Office Second Half 2017 By Kate Gray Director Research kate.gray@colliers.com MARKET HIGHLIGHTS 10 gig city roll out likely to improve demand New Supply pipeline to slow Vacancy Starting to Fall Leasing market Highest net absorption since 2013 The Adelaide market has recorded its highest net absorption figure since January 2014. Net absorption over the six months to July 2018 net absorption was 4,624 sqm, while the annual figure was 6,016 sqm. This has seen vacancy fall ever so slightly to 16.1 per cent, down from 16.2 per cent in January 2017. This small decline in vacancy is partly due to the addition of the remainder of 1 King William refurbished space being added back into supply. Despite the prevailing high vacancy rate, there are few large contiguous spaces available, and secondary vacancy remains high at 17.8 per cent. As in other markets, we are witnessing a flight to quality, with prime grade vacancy tightening to 13.8 per cent from 14.9 per cent in January 2017. The construction cycle in the Adelaide market has slowed, with no new buildings due to complete this year and in 2018. There are several mooted projects in the pipeline, but construction is unlikely to commence without significant pre-commitment. The Attorney General s Department is understood to have committed to half of the Tower 7 development (24,500 sqm) which is being developed by Charter Hall. This project is likely to be completed by July 2019. The Attorney General s Department will vacate 45 Pirie Street, where they have extended their lease. The only other major project in the pipeline is Festival Plaza (circa 40,000 sqm), being developed by Walker Corp. This project is in prelease stage, with an expected completion 2019/2020. Net face rental growth remains stalled for Premium and A grade accommodation, and incentives increased slightly with an average of 37 percent on prime grade space. B Grade accommodation has seen a slight fall in net face rents as well as an increase in incentives. This has impacted in net effective rentals for this grade of space. This is likely to lead to increased refurbishment activity for B grade and secondary assets as landlords are moving towards tenant retention. At this stage, it is unlikely that there will be any significant withdrawals of space for conversion to residential, and therefore secondary grade vacancy is likely to remain high into the medium term. There are several reasons to be more positive in the forecasts for demand for the Adelaide office market over the next 12 months. Growth in white collar employment and therefore demand is likely to be driven by small to medium enterprises in the areas of education, health care and IT. There is also a higher level of larger lease expiry over the next two years, so the number of leasing transactions are expected to improve over the next 12 months. The roll out of the 10 gig city project is likely to drive new demand into the Adelaide office market. This project is a world first and offers businesses a secure and fast business to business network and is likely to result in new entrants into the Adelaide market. Given this technology, the most likely areas that will drive this demand are security, medical and defence. Investment market Activity stalls Investment activity in the Adelaide office market has stalled in the first half of 2017 with no major office sales recorded in this period. This is compared to sales volumes over the last half of 2016, when we recorded over $327 million of sales. Despite the lack of sales in the first half, enquiry remains strong for prime quality assets. There is renewed interest in the Adelaide market from both institutional and offshore investors. Buyers held off on purchasing in part due to the scheduled step down in stamp CBD Office Research & Forecast Report Second Half 2017 17
duty for commercial property, which occurred July 1 2017. This regulatory change saw stamp duty cut by a further third, after the first cut in December 2015. The complete abolishment is due on July 1 2018. In the led up to the cut, we have seen prospective purchasers delay purchasing decisions until the cut become effective. However, there are several large assets which are expected to exchange in the second half. The sale of the MAC portfolio, which includes two office assets in Adelaide, as well as the sale of Citi Centre and 45 Pirie Street, are all expected to conclude in the second half. The current high vacancy rate has led to a two-tiered investment market. Assets that are fully leased with long WALEs are in high demand, while any other asset with vacancy, capital expenditure or short WALEs remaining less attractive to purchasers. The weakness in the Adelaide leasing market is likely to continue to dampen yield compression prospects in the Adelaide market. There is still a significant gap between the yields obtained in the Sydney and Melbourne office markets and the Adelaide office market. These markets are international investment destinations and therefore attract significant institutional and offshore interest, and hence the yields in these markets will always be tighter. While the Adelaide market has some institutional and offshore investment, it is mainly driven by the private investor market. Adelaide CBD Prime and Secondary Vacancy Vacancy % 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Prime Grade (premium & A grade) Secondary Grade (B,C,D grade) Adelaide CBD Office Sales Volumes 2007-2017 Millions 800 700 600 500 400 300 200 100 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1st Half 2nd Half /PCA 121 King William Street, Adelaide Designed and Project Managed on behalf of Colliers International 18
Research & Forecast Report CANBERRA CBD Office Second Half 2017 By Anika Wong Manager Research anika.wong@colliers.com MARKET HIGHLIGHTS Tightening of prime and secondary grade yields A grade vacancy in decline Downward pressure on incentives Investment market Yields tighten High investment activity continues in the nation s capital with transaction volumes of $611.5 million (Canberra Civic and Noncivic) during FYE2017; peaking with the sale of 50 Marcus Clarke Street, Canberra which sold for $321 million setting a new price record, reflecting a 5.87 per cent yield and a capital value rate of $7,985 per sqm of NLA. Offshore investors remain attracted to the long-term WALEs, quality lease covenants and higher returns in contrast to Sydney and Melbourne. Despite the strong investor demand for premium grade stock over lower grade office products, investment yields compressed 25 basis points across A and B grade assets to six per cent and 8.25 per cent respectively. Redevelopments and refurbishments of higher quality secondary grade products have created viable alternatives and competition to A Grade buildings, as investors move up the risk curve to secondary grade and metro assets. Based on the historical long term average spread across both asset classes, we anticipate investment yields to compress further, before bond yields are forecast to rise again in early 2019*. * Deloittes Access Economics Limited supply for prime offices and an over supply of secondary stock Gross effective rents for A grade assets increased by 4.5 per cent in the last year and B grade assets grew 3.8 per cent. This was underpinned by the fall in average incentives to 23 per cent for A grade and 28 per cent for B grade. Incentives had been steady at 25 per cent and 30 per cent since March 2016 for A and B grade respectively, before declining this quarter. The lack of contiguous space in the market is impacting tenants seeking larger floorplates of 2,000sqm or more and, as a result, A grade face rents are expected to increase by 12.5 per cent by 2020. A prevalent theme in the marketplace is public sector tenants expanding into existing office spaces or relocating from secondary office assets to prime grade within Civic. Major government lease expiries of approximately 58,290sqm of office space is coming up in 2019. Over 2017, there is only 14,675sqm of government lease expiries expected. The next phase of new supply is expected to come online over the next two years. New supply in the pipeline for Civic includes Civic Quarter (15,894sqm) soon to be one of Canberra s largest private sector office developments. Being developed by Amalgamated Property Group, the first stage of the project has commenced on the premium quality office building fronting Veterans Park and bordered by Northbourne Avenue and Mort Street. The property is adjacent to the Canberra Centre as well as the ACT light rail and will be ready for occupancy mid-2019. This development will be followed by Constitution Place, offering two prime grade buildings owned by Capital Property Group. The two office buildings include a private sector tower (11,500sqm) located on the corner of London Circuit and Constitution Avenue (20,000sqm), fully leased to the ACT Government. In the private sector tower, 2,000sqm is pre-leased to KWM. Both are due to be completed by August 2020. Vacancy dips below 10% Net absorption of 2,549sqm in the CBD over the 6 months to July 2017 was recorded by the PCA. This is a combination of positive net absorption in A grade stock of 3,509sqm and negative 5,608sqm for B grade stock. This has seen vacancy rates stabilise CBD Office Research & Forecast Report Second Half 2017 19
to 9.5 per cent, still above the 10-year average for Civic (8.9 per cent) although low by more recent standards. The last time we saw vacancy rates this low was in the first half of 2013. The secondary grade market vacancy rate remains high, at 14.8 per cent, underpinned by government tenant preference for higher grade offices as well as lack of withdrawals of C and D grade assets. This in turn is pushing landlords to undertake major refurbishments or redevelopment as an alternative use, where possible. Overall, given the low supply conditions, we expect vacancy rates to further decrease, forecasting to fall to 8 per cent in the second half of 2019. Refurbished space continues contributing to new supply Prime and Secondary Vacancy (%), Jul07-Jul20(f) 20% Forecast 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 A grade 10 yr Average Secondary Grade Total Canberra Office Sales (sales over $20 million) Jul-20 The appetite for higher quality stock by occupiers has pushed owners to upgrade their assets to meet the market demand. 17 Moore Street, Canberra (5,750sqm) owned by CorVal recently completed refurbishment, significantly improving tenant amenity. Once fully leased, it will be the first refurbished building in Canberra to achieve a 5-star NABERS Energy rating. The Molongo Group is also undertaking refurbishment at 33 Allara Street (9,200sqm) with 50 per cent of the building leased to the Murray Darling Basin Authority and no commitments for the remaining space reported at this stage. This is due to come back onto the Millions $700 $600 $500 $400 $300 $200 $100 $0 FYE 2008 FYE 2009 FYE 2010 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 market this year. 44 Sydney Avenue, Forrest Leased on behalf of Quintessential Equity 20
Research & Forecast Report AUCKLAND CBD Office Second Half 2017 By Leo Lee Manager Research & Consulting leo.lee@colliers.com Auckland s positive outlook Strong population and employment growth, plus investment in infrastructure all point to a positive outlook for Auckland s office sector. Surges in employment demand will see Auckland make up 43 per cent (or 67,100 workers) of New Zealand s total employment growth over the next three years, according to the Ministry of Business, Innovation and Employment s latest employment forecasts. Growth in white collar jobs will continue to drive the demand for office space, especially in Auckland CBD. Investor sentiment in our Q2 2017 Investor Confidence Survey shows a net positive 49 per cent of investors are confident in the sector s performance, across occupancy rates, rental and capital appreciation over the next 12 months. This is well above the 10 year average of 24 per cent. Low vacancy driving rents upwards Auckland s success also brings new challenges. Colliers latest CBD office vacancy survey in June 2017 highlights that less than 20,000 sqm (3.6 per cent) of vacant prime office space is available in the Auckland CBD. Overall vacancy is only 5.6 per cent, marginally higher than 5.3 per cent in the last year which was the lowest result recorded since the survey began in 1995. The tightness in the market has seen rents increase by 5.5 per cent for prime net effective rents in the CBD, with very few incentives on offer. Businesses who have struggled to find affordable office space are also causing spill over demand into the metropolitan market. More supply is expected to arrive, but with the completion of a major CBD office tower still more than two years away, CBD rents are expected to remain buoyant in the short term. Auckland CBD office vacancy rate Vacancy Rate 25% 20% 15% 10% 5% 0% Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Source: Colliers International Research NZ Overall Prime Secondary Investors remain active High profile office buildings with strong tenant covenant continue to be the main drawcard for both local and offshore purchasers. Early 2017 saw the conditional purchase (subject to Overseas Investment Office approval) by a Hong Kong based fund of Mansons TCLM s office development at 46 Sale Street in Auckland for $NZ118 million, at a low yield of 6.3 per cent and a WALE of approximately 10.5 years. Provisional commercial property sales data ($5 million or more) shows an aggregate of $1.5 billion of office property sales across New Zealand, most of which are properties in Auckland (72 per cent). Finding trophy offices available for sale in the CBD to satisfy demand is a difficult task. As a consequence, average prime yields have continue to move downwards to 6.4 per cent in June 2017 compared to 6.8 per cent a year ago. Secondary yields have followed the same trend reducing to 7.6 per cent from 8.4 per cent. Investors have enjoyed a period of historically low debt costs over the past few years. There has been talk of rising debt cost on the horizon, but it has not happened yet. Alternative asset returns such as term deposits have remained relatively modest. Until rates rise significantly, investors appetite for property assets is unlikely to be diminished. CBD Office Research & Forecast Report Second Half 2017 21
OUR EXPERIENCE CBD OFFICE SOLD 477 Collins Street Melbourne, VIC $414 mill (50%) On behalf of Mirvac Group 505 St Pauls Terrace Fortitude Valley, QLD $202.5 million On behalf of ISPT Super Property 628 Bourke Street Melbourne, VIC $184.65 million On behalf of M&G Asia Core Fund MANAGED 201 Charlotte Street Brisbane, QLD 13,438m² On behalf of Fortius 117 Clarence Street Sydney, NSW 12,000m² On Behalf of Roxy Pacific 460 Lonsdale Street Melbourne, VIC 11,000m² On behalf of Private Client LEASED 123 Eagle Street Brisbane, QLD 51,775m² On behalf of The GPT Group 447 Collins Street Melbourne, VIC 20,000m² On behalf of Cbus Property 44 Sydney Avenue Forrest, ACT 7,789m² On behalf of Quintessential Equity VALUED Tower One, International Towers Sydney 100 Barangaroo Avenue Sydney, NSW 106,838m² On behalf of Lendlease 101 Collins Street Melbourne, VIC 83,570m² On behalf of Eureka Funds Management MLC Centre 19-29 Martin Place Sydney, NSW 73,095m² On behalf of Dexus Funds Management Limited DESIGNED AND PROJECT MANAGED 407 Elizabeth Street Surry Hills, NSW 4,900m² On behalf of Woolworths Group 225 George Street Sydney, NSW 3,000m² On behalf of JLT Australia 40 City Road Southbank, VIC 1,300m² On behalf of CGI Accelerating success. How else can we help you? Speak to one of our property experts today. au.office@colliers.com
AUSTRALIA AND NEW ZEALAND IN THE LAST 12 MONTHS $4.68 billion of CBD office assets 275 George Street Sydney, NSW $82.75 million On behalf of QIC 8 Spring Street Sydney, NSW $68.88 million On behalf of Heathley Asset Management 82 Northbourne Avenue Braddon, ACT $57.33 million On behalf of Worthwest 129 CBD office assets achieving a 98.2 per cent occupancy rate 116 Adelaide Street Adelaide, SA 6,690m² On behalf of HCK 724-728 George Street Sydney, NSW 3,381m² On behalf of Private Client 80 Hutt Street Adelaide, SA 1,815m² On behalf of Genworth 609 deals for 746,577 square metres of CBD office space 44-50 Flinders Street Adelaide, SA 7,100m² On behalf of Santos 255 Pitt Street Sydney, NSW 3,788m² On behalf of ISPT 68 Milligan Street Perth, WA 1,000m² On behalf of Soneel Pty Ltd 7.5 million square metres totalling over $71 billion worth in value 477 Collins Street Melbourne, VIC 55,871m² On behalf of Mirvac 200 George Street Sydney, NSW 38,983m² On behalf of AMP Capital Investors Limited 120 Edward Street Brisbane, QLD 15,271m² On behalf of Deutsche Bank Integrated property solutions delivered by our Occupier Services team 60 City Road Southbank, VIC 1,300m² On behalf of Amcor Limited 6 Riverside Quay Southbank, VIC 800m² On behalf of ViaSat 121 King William Street Adelaide, SA 662m² On behalf of Colliers International For more information about Colliers International and working with us visit: www.colliers.com.au