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News release

Melbourne

Melbourne leasing deal points to tenants and owners positioning for commercial property market growth

NAB renegotiates its leases at 555 Collins Street and 120 Spencer Street until end of 2013


MELBOURNE, 25 MAY 2010 – In a clear sign that owners and tenants are positioning for an improved commercial property market, NAB has renegotiated leases for two buildings they occupy in Melbourne at  555 Collins Street and 120 Spencer Street and the owner, Stamoulis Property Group will refurbish these properties for lease expiry and new market opportunities in 2014.
 
Jones Lang LaSalle managed the renegotiation of the NAB leases on behalf of the owner.  NAB has extended their lease term to occupy 22 levels (23,700 sqm) of space at  555 Collins and 15,600 sqm of space at 120 Spencer Street through to the end of 2013, while they investigate development options for their Melbourne space requirements.  United Group represented NAB in the lease negotiations.
 
Australian Head of Leasing, Kevin George said Jones Lang LaSalle had also been engaged to advise on a refurbishment strategy for both buildings, currently B-grade, to attract new tenancies post 2013.
 
“Both of these buildings are well located and offer large floor plates of between 1000 – 1500 sqm.  The renewal of the NAB leases now provides an opportunity for the owner to refurbish these buildings to meet the market opportunity in 2014.
 
“Prime vacancy in Melbourne tightened to 5.1% in the March quarter and increased competition for prime contiguous space is evident.  With expectations of a further tightening of vacancy in 2011 and 2012, off the back of a limited supply pipeline for this period, owners are looking at options for upgrading existing buildings to deal with the expected tenant demand, especially tenants looking for whole floors of space and adjacent floors in quality accommodation.
 
“This upturn in tenant demand and a moderate development pipeline is pointing towards a strong rental cycle in the 2010 to 2013 timeframe.
 
“The renegotiating of the NAB leases shows that tenants are increasingly aware that the window of opportunity to relocate on favourable leasing terms is starting to close and that owners and landlords are starting to position their assets for expected rental growth from 2011 onwards,” Mr George said.
 
The owners of 555 Collins Street and 120 Spencer Street  are planning refurbishment strategies for both buildings.  555 Collins is likely to involve an upgrade to A-grade accommodation involving significant external and internal improvements, upgraded mechanical and electrical services, with a view to increasing the sustainability rating and performance of the asset.
 
“Stamoulis Property Group has owned these buildings for a number of years and is looking to upgrade and improve these assets to benefit from the shift in the market from tenant-favourable to landlord-favourable.  We expect to see this shift across the major commercial property sectors in Australia over the next two to three years as yields tighten, vacancy falls and rents rise.
 
“Currently in the Melbourne market, a number of tenants including NAB, BHP and Freehills are investigating pre-commitments to new commercial office buildings.  However, due to the forecast moderate supply pipeline, there is a potential niche opportunity for owners of existing buildings that are well located to refurbish.
 
“Buildings offering contiguous space in key areas like the Docklands corridor will be attractive to tenants looking for cost effective rental options close to the Melbourne CBD and this will open up opportunities for owners with existing buildings in this area,” Mr George said.
 
Mr George said another key factor motivating owners to reposition their assets was the expected introduction of the Federal Government’s proposed Mandatory Disclosure of Commercial Building Energy Efficiency.
 
“The new scheme will require disclosure of the greenhouse performance of buildings or tenancies over 2000 sqm upon lease or sale.
 
“This will add an unprecedented level of transparency to the commercial building market and we are encouraging owners and landlords of commercial buildings to begin preparing for the onset of the scheme, expected in the second half of 2010,” Mr George said.