Tick, tock, tech: office tenants want buildings to get with the digital times
Sydney and Melbourne rule supreme with Australia’s lowest office vacancy rates, but the race is on to improve connectivity, according to JLL’s latest research
AUSTRALIA, 8 OCTOBER 2019 – The pace of digitisation is driving corporate tenants to increasingly seek better amenity in their office space, including communal space activation and the latest technology solutions, according to JLL’s new national report, Tenant Trends, September 2019.
Increasingly, the priority for landlords is digital connectivity, with 34% of real estate leaders surveyed by JLL saying technology would be their biggest increase in investment or budget allocation in the next 12 months.
Showers/end-of-trip facilities, yoga/meditation spaces, concierges and dry cleaning are becoming the norm in many premium office buildings. But in cities where tenants can pick and choose, landlords have to work harder to retain good tenants.
Perth, Adelaide and Brisbane are currently the cities which are tenant favourable.
JLL’s researchers found Perth CBD’s office vacancy rate was 20.4% in 2Q19, well above the 10-year average of 14%. Brisbane tenants enjoyed plentiful incentives, while Adelaide’s 14% vacancy rate prompted businesses to ask for shorter leases for smaller spaces.
Office space remained tight in Melbourne’s CBD, with 3.8% vacancy in 2Q19, and for Sydney (4.1%). This will ensure these markets continue to be landlord friendly.
JLL’s Director – Tenant Representation, Victoria, Kate Pilgrim, said: “It takes more than a ping-pong table to impress tenants these days. Landlords are having to think more broadly about what amenities are perceived as enablers of a more efficient and happier workforce.
“We’re seeing building owners who want to compete for high-quality tenants responding with the next generation of tech-based initiatives. The demand for data from consumers, cloud-based services and smart-building Internet of Things devices is increasing exponentially. I don’t really see this slowing down.”
More than 6 million people across Europe, the U.S. and Canada now work in buildings certified by WiredScore, a rating scheme that verifies landlords’ investment in technology. About 85% of decision-makers believe that if they don’t digitally transform within the next 24 months, they’ll fall behind the competition, according to a report from Progress Software.
“The challenge is integrating this new tech into office design,” Ms Pilgrim said. “Where we’re moving is toward facial recognition entry that will let employees walk in without fumbling passes. Visitors will be texted a QR code for entry. Everyone will be able to control air conditioning from their desks.”
Australia’s CBD markets at a glance:
Adelaide: Vacancy sits at 14%. 9,000 sqm was absorbed in 2018/19. Prime gross effective rents rose by 5.4% over the 2018/19 financial year.
Brisbane: JLL’s QLD Head of Tenant Representation, Dirk Van Velden said, “CBD vacancy is 11%, with prime vacancy at 7% – still in tenants’ favour. New tenancies absorbed 34,200 sqm in 2018/19, including 9300 sqm in 2Q19. New developments Mid-Town and 300 George Street will increase the prime-grade stock.”
Canberra: Vacancy, at 11%, remains just below the 10-year average of 12%. Space is tight among A-grade stock (6.5% vacancy). Tenants are increasingly asking for end-of-trip facilities in a city where commuter cycling is popular.
Melbourne: Tenants took up 93,700 sqm in Australia’s tightest rental market, where vacancy was 3.8% in 2Q19. Education providers accounted for approximately 10% of CBD take-up during the past five years. Monash University expanded its CBD footprint and TMG College Australia opened a third campus.
“As landlords seek to retain tenants we’re seeing increased investment in base building amenities, such as tenant lounges, centralised meeting rooms and conference spaces, providing tenants with flexible options outside their immediate floor space,” Ms Pilgrim said.
Perth: JLL’s WA Head of Tenant Representation, Andrew Campbell said, “The concentration of vacancy sits in secondary stock and is above 20% in 2Q19. The education sector continues to expand into the CBD, including Curtin University’s new premises at 137 St Georges Terrace. UWA, Murdoch and ECU have all expressed interest in establishing CBD campuses over the next 12 months.”
Sydney: Many of the medium to large corporates located in the Sydney market are multi-national by nature and rely on offshore approval if they want to relocate. The CBD vacancy rate was 4.1% in 2Q19, well below the 25-year average of 8.3%.
“With limited new stock coming on line until 2024, and existing stock being tight, Sydney CBD tenants face a stay or move dilemma,” Ms Pilgrim said.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of more than 93,000 as of September 30, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.