Skip Ribbon Commands
Skip to main content

News release

Sydney

Half-yearly report for occupiers of commercial real estate as CoreNet Global Summit starts in Sydney

Jones Lang LaSalle releases report as more than 100 senior corporate real estate leaders from Australasia meet in Sydney


SYDNEY, 2 AUGUST 2010 — Corporate Real Estate leaders across Australasia are being advised to capitalise on their ‘tenant market’ advantage while they can, in a new report from Jones Lang LaSalle.
 
The report examines the timeline in Australian and New Zealand commercial property markets where the window of opportunity for occupiers to upgrade their space and locations at zero or little cost is diminishing as rental rates bottom.
 
Jones Lang LaSalle Research indicates that the Melbourne and Adelaide markets are already balanced or ‘neutral’ and set to become ‘landlord’ markets as early as 2011.  Sydney remains a ‘tenant favourable’ market but is expected to move into ‘neutral’ in 2011 and then set to move to a landlord market in 2012.  It is anticipated that Brisbane, Perth, Canberra, Auckland and Wellington will remain ‘tenant favourable’ in 2011, with Brisbane and Perth set to become neutral in 2012 and Canberra not set to go into the neutral phase until 2013.  (see Figure 2 below from the Report)
 
Director of Corporate Solutions at Jones Lang LaSalle, Michael Greene said, “With Australian markets currently in different gears, corporate occupiers will need to think strategically about where the opportunities will be for them for the rest of this year and into 2011.
 
“Medium-term strategic thinking is back on the corporate agenda.
 
“As the economic recovery takes hold and property market activity levels and occupier demand pick up, corporate occupiers will be assessing the divergent outlook for supply, vacancy and rents in Australian markets to take advantage of market fundamentals before the window of opportunity closes.
 
“Jones Lang LaSalle’s Research shows that the window of opportunity for tenants still exists but is closing in many markets around Australia.  To secure the best outcome, occupiers need to act quickly,” he said.
 
Mr Greene’s state by state commentary provides an insight into key Australian markets:
 
•  Brisbane provides good opportunities for tenants, with two large new buildings being constructed at 123 Albert Street and 111 Eagle Street. This flood of new space will result in increased vacancy, providing more choice and prompting a flight to quality. Vacancy is expected to shift as tenants in secondary buildings take advantage of current conditions to upgrade to premium space. Later, corporate tenants looking for secondary space will be able to take advantage of the increased vacancy in that market.
 
•  In Sydney, the market is tightening. The finance and insurance sector occupies approximately 35% of the space in the Sydney CBD. Therefore, recovery in the Sydney leasing market is finance sector-led. Australia’s big four retail banks have emerged from the GFC in robust health and have continued to increase headcount. Though currently in the tenants favour, the market will trend in favour of landlords over the next 18 months. An increase in new developments, including 1 Bligh Street, 163 Castlereagh Street and at 420 George, which will come to the market at staggered intervals over the next three years, will provide excess and back-fill space for corporate tenants. Barangaroo also has the ability to tip a large amount of quality space into the market.  This will largely rely on pre-commitments once again creating excess and back fill opportunities. So while there are staggered opportunities entering the market it will be imperative for tenants to time requirements with the appropriate opportunities coming to the market at that time.  This may require short term lease extensions to line up expiry with opportunity and provide greater flexibility. Overall Sydney presents some good options for tenants over the next 18 months, providing the availability of property aligns with projected relocation timeframes.
 
•  The Melbourne market shows evidence of the growth of finance sector employment. National Australia Bank has pre-committed to a new 60,000sqm development in the Docklands and ANZ have taken a further 6,300 sqm of space in the CBD after the consolidation at Docklands in late 2009. ME Bank has also recently committed to relocate and expand their premises in Melbourne. Vacancy rates are at the cyclical peak of 6.3% in the Melbourne CBD. For companies requiring space less than 3,000 sqm there are a number of options available.  For larger tenants the market is very limited and many are waiting for larger developments to be completed. It is expected the tight market will trigger new development as larger corporates seek larger space that is not readily available.
 
•  In Perth, the market is getting tighter. New construction is occurring (for example the new BHP Headquarters) and there is some space available now for tenants. However, with the strength of the mining sector it is expected this space will be quickly taken up.  In addition, large companies pursuing expansion through new buildings will also likely retain existing space in addition to taking up these new tenancies to cater for expansion. Rents are high enough to justify development, however any new projects will depend on a high level of pre-commitment from tenants.
 
• In Adelaide, vacancy rates are currently at 7.8% and there is only one new 18,000 sqm development under construction, which is scheduled for delivery by 2012. In the current market, all new buildings have been fully pre-committed and existing stock is relatively old. For tenants there is limited opportunity for new stock, unless they can make a substantial pre-commitment to a development.
 
Mr Greene said, “The drivers for tenant action will be different from what has gone before with a clear shift from a defensive strategy to carefully planned and coordinated opportunism.
 
“Cost considerations will continue front and centre, but the emphasis will be on cost avoidance rather than pure cost cutting.
 
“The eternal challenge for CRE’s is how to manage for growth, balancing the needs of the business (which change rapidly) in the context of the property market which moves at a slower pace.
 
“With cautious optimism permeating business sentiment, CRE teams will need to plan for growth in a market that is moving into the landlord’s favour. One strategy may be to get in early and lock away options and expansion space at lower rentals rather than trying to procure short-term space requirements in a rapidly rising market,” Mr Greene said.
 
About the CoreNet Global Summit, Sydney (2-4 August, Shangri-La Hotel, Sydney)
 
CoreNet Global Summit, Sydney 2010 is the leading conference for Corporate Real Estate (CRE) professionals.  More than 100 senior executives are attending the Summit from major corporations across Australasia. For more information regarding the conference, go to www.corenetglobal.org

 Jones Lang LaSalle has a number of senior leaders and subject matter experts speaking at the summit including:
 
• Chris Hunt, Head of Integrated Facilities Management, Australasia
• Chris Wallbank, Head of Energy and Sustainability Services
• David Brown, Head of Lease Administration, Asia Pacific
• Michael Greene, Director - Tenant Representation
• Rajiv Nagrath, Director - Corporate Solutions

About Jones Lang LaSalle Corporate Solutions
Fifteen years ago, Jones Lang LaSalle pioneered the corporate real estate offering in Asia Pacific. Today, our platform provides unmatched services across a single project, country or regional portfolio. Our commitment to shaping our business around the needs of our clients and delivering on our promises keeps us at the forefront of our industry.