Everything old is new again: CBDs take stock of vintage office blocks
Small and not so efficient, pre-1980s assets will appeal to smaller organizations but may not appeal to some key tenant sectors, JLL’s latest research has found
AUSTRALIA, February 2020 – Mid-century office blocks have retro charm and often command good CBD positions close to transport. But many older buildings may not provide what some corporate tenants need, and this could lead to a space shortage of prime quality stock in Sydney and Melbourne, JLL’s research has found.
In Sydney, 33% of CBD office stock is more than 40 years old. In Melbourne’s CBD the figure is 25% Adelaide is also weighted to older stock with 30% stock built in the 1970’s or earlier.
They can be expensive to refurbish and sometimes difficult to consolidate, older buildings may struggle to meet modern standards for energy efficiency and disability access. But the new Metro rail projects in Sydney and Melbourne might increase their appeal to tenants who require a CBD location.
JLL’s latest Future Cities report, Challenges and Opportunities of CBD Office Markets, surveyed buildings in Sydney, Melbourne and Brisbane to discover the challenges facing these ageing assets:
- Expansive end-of-trip facilities and disability access
- Lifts can be costly to maintain and replace
- Inefficient air-conditioning might preclude a higher NABERS rating
Floorplates (pre-1980) are typically small – an average 600 sqm plate built before 1970, while, in 2019, average office floorplates are 1800 sqm. (Australia’s biggest office floorplate, ANZ at 833 Collins Street, Melbourne, is 7250 sqm.)
However, significant supply over the last decade has increased total stock in Melbourne’s CBD by 19% adding close to one million sqm (971,400 sqm). Approximately 72% of this stock increase has been in Docklands. In fact, 62% of all CBD stock built over the last 10 years in our five largest capital cities has been completed in Sydney (711,300 sqm) and Melbourne (971,400 sqm). The supply wave is continuing and Melbourne accounts for 55% of all CBD stock currently under construction.
JLL’s Senior Director – Research, Australia, Annabel McFarlane, said: “CBD office markets have a number of advantages that include the best access to the widest talent pool, the best public infrastructure, great urban amenity and agglomeration of businesses in a central location. But, as corporate Australia grows, the risks for the CBD market include greater congestion, loss of open space and office rents that are prohibitive for some groups.
“Many corporates need a CBD location; these include ASX-listed companies, banks and professional services such as lawyers and accountants. These tenants will work to maximize efficiency in older stock with typically smaller floor plates.,” Ms McFarlane said.
CEO of JLL Australia, Stephen Conry, said: “Connectivity with rail is important in our major cities, as it reduces commute times for the people that businesses are seeking, as well as for clients and customers. Our research has demonstrated that office assets within a block of a train station out-perform other stock in rental growth and low vacancy rates. In Melbourne, vacancy for station precincts is on average 2.5% lower and, in Sydney, 1.2%.
“Sydney Metro Stage 2, City and Southwest and Melbourne’s Metro Tunnel projects will be sorely needed by the time they’re completed in 2024 and 2025. The Sydney Metro connects the high population North West growth corridor with the key employment precincts in Macquarie Park, the North Shore and Sydney CBD.
“New stations at Victoria Cross (North Sydney), Central Barangaroo, Martin Place and Pitt Street will further activate these sub-markets and improve their appeal to modern corporate occupiers.
“However, our three levels of government and the private sector need to acknowledge future potential challenges. We need continued ongoing investment in infrastructure and technological solutions to manage CBD congestion and overcrowding on our trains,” Mr Conry said.
Sydney: Of the CBD’s 5 million sqm of office space, just 18% is less than 10 years old or currently under construction. Super-site consolidation – such as Dexus, which has snapped up three properties adjacent to 56 Pitt Street – might allow regeneration at desirable addresses.
Melbourne: A building boom has increased CBD stock by 19% in the past decade, with another 8% under construction for a total of 5.2 million sqm. The Docklands – part of which is classified as CBD – still has land available north of Marvel Stadium, but once this is exhausted asset owners might benefit from refurbishing existing stock.
Brisbane: The Queensland capital shows a flight to quality, with a sharp difference in vacancy rates between prime (6.8%) and secondary (15.5%) office stock. Owners can expect good rental growth once stock is absorbed, which is likely because of strong population growth.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 93,000 as of December 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.