Australia Office, Q3 2015 New CBD office supply is ... · • The sale of Investa’s portfolio of...

MARKETVIEW

New CBD office supply is

improving the quality of stock

Australia Office, Q3 2015

NEW SUPPLY CONTINUES THE TREND OF

IMPROVING OFFICE QUALITY IN CBD MARKETS

Q3 2015 CBRE Research © 2015 CBRE, Inc. | 1

National CBD

WCE Jun-15

0.9% p.a

National CBD

Vacancy Q215

10.7%

National CBD Net

Absorption 2015

153,000sqm F

National CBD Net

Supply 2015

361,000sqm F

KEY POINTS

• CBRE estimates 350,000sqm of new supply will enter

Australian CBD markets in H215, a record for any

half-year period.

• Stock withdrawals will partly mitigate the impact, but

we forecast vacancy will rise to 12% by year-end.

• Tenant demand in Sydney has surprised to the upside

and we have revised up our 2015 forecasts for net

absorption (75,000sqm) and rent growth (4%).

• Tenant migration has boosted net absorption in the

Melbourne CBD, and we forecast this market will

record the highest level of net absorption

(80,000sqm) amongst CBD markets in 2015.

• Demand conditions in the resource markets (Brisbane,

Perth) remain weak.

• Net absorption turned positive in Adelaide in H115

following contraction in 2014.

• Net absorption also turned positive in Canberra in

H115. A relatively inactive pipeline should see

vacancy decline over the medium term.

• The sale of Investa’s portfolio of nine office towers to

CIC for $2.45bn boosted sales volumes in Q3.

• Capital markets remain strong in the gateway cities of

Sydney and Melbourne. Yields in Australian CBD

markets continue to compress (to varying degrees) but

we forecast this will moderate over H116.

National CBD

Prime Yield Q215

6.26%

Figure 1: Prime grade stock as a proportion of total market

20%

30%

40%

50%

60%

70%

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Australia Sydney Melbourne Brisbane Perth Canberra Adelaide

Source: CBRE Research, PCA , Q3 2015

MARKETVIEW

ECONOMIC ACTIVITY DRIVING OFFICE LEASING

IN 2015


AUSTRALIA OFFICE

HIGH TENANT INCENTIVES PUSHING REAL

EFFECTIVE RENTS TO POST-2000 LOWS

Figure 2: Contribution to office industries GVA growth

Source: CBRE Research, ABS Q32015

Figure 3: Australia CBD office rent growth in real terms

60

70

80

90

100

110

120

130

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Prime Real Net Face Rent Index

Prime Real Net Effective Rent Index

Forecast

Source: CBRE Research, ABS Q3 2015

-2

-1

0

1

2

3

4

An

nu

al

Co

ntr

ibu

tio

n (

%)

Health & social EducationPublic administration AdministrationProfessional & technical Rental, hiring and real estateFinance & insurance Info. media & telcoOther private services GVA - Office based sectors

MARKETVIEW

-12.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

-160,000

-120,000

-80,000

-40,000

0

40,000

80,000

120,000

160,000

Va

ca

nc

y (

%)

Net

Ad

dit

ion

s a

nd

Ab

so

rpti

on

(S

qm

)

Annual Net Additions (sqm) Annual Net Absorption

Vacancy %


AUSTRALIA OFFICE

Figure 4: Net Supply, Absorption and Vacancy

Source: CBRE Research, Q3 2015

Figure 5: CBD New Supply Pipeline


Forecast

Sydney Office Markets

0

20,000

40,000

60,000

80,000

100,000

120,000

5 M

art

in P

lace

20 M

art

in P

lace

Bara

ngaro

o S

ou

th T

2

Bara

ngaro

o S

ou

th T

3

200 G

eorg

e S

t

333 G

eorg

e S

t

Bara

ngaro

o S

ou

th T

1

Darlin

g S

quare

151 C

lare

nce S

t

The R

ibbon

275 G

eorg

e S

tree

t

1 C

arr

ingto

n S

tree

t

50 B

ridge S

t

Georg

e &

Pitt S

t (L

end

Lease

)

37-5

1 P

itt S

t

33 B

ligh S

t

60 M

art

in P

lace

2015 2015 2015 2016 2016 2016 2017 2017 2018 2018 1905 2019 2020 2020 2020 2020 2020

Sqm

New Pre-committed Mooted

MARKETVIEW


AUSTRALIA OFFICE

Figure 6: Prime Net Face Rents by Market ($/sqm)


Figure 7: Vacancy by Market


$0

$200

$400

$600

$800

$1,000

$1,200

Pri

me

Net

Fa

ce

Ren

t ($

/sq

m)

Sydney CBD North Sydney

Crows Nest St Leonards Chatswood

Macquarie Park Parramatta

Forecast

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Va

ca

nc

y (

%)




Forecast


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AUSTRALIA OFFICE

Figure 8: Office Sales by Market


Figure 9: Prime Yield by Market



4%

5%

6%

7%

8%

9%

10%

Pri

me

Yie

lds

(%

)

Sydney CBD North SydneyCrows Nest St Leonards ChatswoodMacquarie Park Parramatta

Forecast

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

Sa

les

Vo

lum

es

($

m)




Sydney City Fringe

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© 2015 CBRE, Inc. | 6

AUSTRALIA OFFICE



Melbourne Office Markets

Figure 11: CBD Supply Pipeline


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Vacancy (%

)

Net A

dd

itio

ns a

nd

Ab

sorption (Sq

m)


Vacancy %

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

313

Spencer St

570

Bourke St

700

C

ollin

s Str

eet

699

Bourke St

567

C

ollin

s St

525

C

ollin

s Str

eet

360

C

ollin

s Str

eet

Collin

s Sq Tw

r 2

80 C

ollin

s St

477

C

ollin

s St

664

C

ollin

s Str

eet

447

C

ollin

s St

2015 2015 2015 2015 2015 2015 2015 2016 2017 2018 2018 2020

Sq

m

New Refurb Precommitted Mooted

Forecast

Q3 2015 CBRE Research

MARKETVIEW

© 2015 CBRE, Inc. | 7

AUSTRALIA OFFICE






$0

$100

$200

$300

$400

$500

$600

Prim

e N

et Face R

ent ($

/sqm

)

Melbourne CBD Southbank St Kilda Road

Forecast

0%

2%

4%

6%

8%

10%

12%

14%

16%

Vacancy (%

)


Forecast


MARKETVIEW

© 2015 CBRE, Inc. | 8

AUSTRALIA OFFICE






4%

5%

6%

7%

8%

9%

10%

Prim

e Y

ield

s (%

)


Forecast

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

Sale

s V

olu

mes ($

m)

Melbourne CBD Southbank St Kilda Road Melbourne Suburban


MARKETVIEW


AUSTRALIA OFFICE





Brisbane Office Markets

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1

80

Bri

sba

ne

1

55

Qu

ee

n S

tre

et

4

80

Qu

ee

n S

tre

et

3

10

An

n S

tree

t

1

Will

iam

Str

ee

t

3

04

Ge

org

e S

tre

et

2015 2015 2016 2016 2016 2019

Sq

m

New Refurb Precommitted

-12.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

21.0%

-120,000

-90,000

-60,000

-30,000

0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

Va

ca

nc

y (

%)

Net

Ad

dit

ion

s a

nd

Ab

so

rpti

on

(s

qm

)


Vacancy %

Forecast

MARKETVIEW

Q3 2015 CBRE © 2015 CBRE, Inc. | 10

AUSTRALIA OFFICE






$0

$100

$200

$300

$400

$500

$600

$700

$800

Pri

me

Net

Fa

ce

Ren

t ($

/sq

m)

Brisbane CBD Near City

Forecast

0%

5%

10%

15%

20%

25%

Va

ca

nc

y(%

)


Forecast

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AUSTRALIA OFFICE






4%

5%

6%

7%

8%

9%

10%

Pri

me

Yie

lds

(%

)


Forecast

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Sa

les

Vo

lum

es

($

m)

Brisbane CBD Brisbane Near City Suburban

MARKETVIEW


AUSTRALIA OFFICE



Perth Office Markets



-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

24%

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Va

ca

nc

y (

%)

Net

Ad

dit

ion

s a

nd

Ab

so

rpti

on

(S

qm

)

Annual Net Additions (sqm) Annual Net AbsorptionVacancy %

Forecast

0

10,000

20,000

30,000

40,000

50,000

60,000

Go

lden

Sq

Kin

gs S

q (

Bld

g 2

)

Kin

gs S

q (

Bld

g 3

)

Kin

gs S

q (

Bld

g 4

)

99

9 H

ay S

t

Bro

okfield

Pl -

Tw

r 2

Kin

gs S

q (

Bld

g 1

)

Colo

nia

l B

uild

ing

Old

Tre

asu

ry B

ldg

Cap

ita

l S

q T

wr

1

48

0 H

ay S

t

Eliz

ab

eth

Qu

ay

2015 2015 2015 2015 2015 2015 2015 2016 2016 2018 2018 2023

Sq

m


MARKETVIEW


AUSTRALIA OFFICE






$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Pri

me

Net

Fa

ce

Ren

t ($

/sq

m)

Perth CBD West Perth

Forecast

0%

5%

10%

15%

20%

25%

Va

ca

nc

y (

%)


Forecast

MARKETVIEW


AUSTRALIA OFFICE






0

200

400

600

800

1,000

1,200

1,400

1,600

Sa

les

Vo

lum

es

($

m)

Perth CBD West Perth Suburban

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Pri

me

Yie

lds

(%

)


Forecast

MARKETVIEW


AUSTRALIA OFFICE



Adelaide Office Markets



-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Vacancy (%

)

Net A

dd

itio

ns a

nd

Ab

sorption (Sq

m)


Vacancy %

Forecast

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50

Flin

de

rs S

t

16

7-1

75 F

lind

ers

St

16

9 P

irie

St

82

-98

Wake

field

St

1 K

ing

Will

iam

St

11

5 K

ing W

illia

m S

t

17

0 F

rom

e S

t

Pre

cin

ct G

PO

Festiva

l P

laza

2015 2015 2015 2015 2015 2016 2016 2018 2018

Sq

m


MARKETVIEW


AUSTRALIA OFFICE






$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

Prim

e N

et Face R

ent ($

/sqm

)

Adelaide CBD Adelaide Fringe Total

Forecast

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Vacancy (%

)


Forecast

MARKETVIEW


AUSTRALIA OFFICE






$0

$100

$200

$300

$400

$500

$600

Sale

s V

olu

mes ($

m)

Adelaide CBD Adelaide Fringe Suburban

4%

5%

6%

7%

8%

9%

10%

Prim

e Y

ield

s (%

)


Forecast

MARKETVIEW

-8%

-4%

0%

4%

8%

12%

16%

20%

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

Va

ca

nc

y (

%)

Net

Ad

dit

ion

s a

nd

Ab

so

rpti

on

(S

qm

)

Annual Net Additions (sqm) Annual Net AbsorptionVacancy %


AUSTRALIA OFFICE





Forecast

Canberra Office Markets

0

10,000

20,000

30,000

40,000

50,000

60,000

An

ke

tell

St

Offic

es

Min

ing I

nd

ustr

y H

se

10 -

12

Lo

nsd

ale

St

AC

T G

ovt

Gu

ng

ah

lin O

ffic

e

Tug

ge

ran

on

g O

ffic

e P

ark

Lo

vett

Tow

er

Se

ctio

n 6

3

Nort

hb

ou

rne

Sq

uare

Se

ctio

n 9

6

2015 2015 2015 2015 2017 2017 2018+ 2018+ 2018+

Sq

m


MARKETVIEW

$320

$330

$340

$350

$360

$370

$380

Pri

me

Net

Fa

ce

Ren

t ($

/sq

m)

Canberra CBD Canberra Civic Canberra Non- Civic

Forecast


4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Pri

me

Yie

lds

(%

)


Forecast

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Va

ca

nc

y (

%)


Forecast


AUSTRALIA OFFICE






Canberra Office Markets

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AUSTRALIA OFFICE


f: forecast, NER: net effective rent, NFR: net face rent

Table 1: Major Market Forecasts, Q3 2015

Sydney CBD Dec-13 Dec-14 Dec-15f Dec-16f Dec-17f

Net Additions 102,414 3,022 66,921 47,570 89,004

Net Absorption 6,305 78,262 74,796 57,701 45,181

Vacancy 9.0% 7.4% 7.2% 6.9% 7.7%

Prime NFR $883 $891 $918 $941 $960

Prime NER $590 $586 $615 $630 $662

Prime Yield 6.43% 5.96% 5.38% 5.39% 5.66%

Melbourne CBD Dec-13 Dec-14 Dec-15f Dec-16f Dec-17f

Net Additions 79,391 94,124 65,779 61,768 45,000

Net Absorption 857 67,213 81,713 41,902 47,974

Vacancy 8.7% 9.1% 8.6% 8.9% 8.8%

Prime NFR $488 $492 $497 $502 $509

Prime NER $343 $337 $338 $341 $346

Prime Yield 6.73% 6.53% 6.16% 6.23% 6.50%

Brisbane CBD Dec-13 Dec-14 Dec-15f Dec-16f Dec-17f

Net Additions 10,255 - 4,436 17,637 106,910 -48,812

Net Absorption - 100,099 - 29,836 - 4,254 13,395 25,058

Vacancy 14.3% 15.5% 16.4% 19.6% 16.9%

Prime NFR $624 $618 $615 $609 $609

Prime NER $445 $409 $400 $396 $408

Prime Yield 7.47% 7.14% 7.00% 6.95% 7.25%

Perth CBD Dec-13 Dec-14 Dec-15f Dec-16f Dec-17f

Net Additions 7,343 29,009 115,346 25,225 - 10,000

Net Absorption - 46,442 - 67,270 - 28,599 21,271 23,458

Vacancy 9.0% 14.8% 22.1% 22.0% 20.2%

Prime NFR $736 $670 $597 $579 $570

Prime NER $650 $469 $328 $318 $342

Prime Yield 7.93% 7.93% 7.70% 7.85% 8.04%

Adelaide CBD Dec-13 Dec-14 Dec-15f Dec-16f Dec-17f

Net Additions 37,756 - 4,389 45,391 10,800 0

Net Absorption - 6,138 - 18,703 11,532 8,639 12,277

Vacancy 12.4% 13.5% 15.5% 15.5% 14.6%

Prime NFR $390 $411 $413 $413 $417

Prime NER $311 $308 $289 $289 $300

Prime Yield 8.06% 7.96% 7.07% 7.22% 7.54%

Canberra Dec-13 Dec-14 Dec-15f Dec-16f Dec-17f

Net Additions 61,232 46,057 50,288 - 23,629 17,440

Net Absorption 35,297 - 21,765 18,049 18,561 27,499

Vacancy 12.9% 15.4% 15.2% 13.6% 13.0%

Prime NFR $359 $357 $365 $372 $379

Prime NER $276 $275 $281 $286 $292

Prime Yield 7.71% 7.74% 7.39% 7.38% 7.67%

Table 2: Major Office Sales, Australia, Q3 2015

Address Market Sale Date Sale Price Purchaser Vendor

Investa Property Trust portfolio* Various Aug-15 $2.45bn China Investment Corporation Investa Property Trust

*Assets comprised 126 Phillip St (25%), 225 George St (25%), 400 George St (50%), 31 Market St (100%), 55 Market St (100%) and 255 Elizabeth St (100%) in Sydney; 80 Pacific H’way (100% in North Sydney); 120

Collins St (50%) in Melbourne; and 410 Ann St (100%) in Brisbane.

222 Exhibition Street Melbourne CBD, Vic Aug-15 $222.5m LaSalle Investment AMP Capital

Aurizon Headquarters Fortitude Valley, Qld Sep-15 $170.0m Charter Hall Core Office Fund/Direct Office Fund Consolidated Properties

Space 207 St Leonards, NSW Aug-15 $169.5m Altis Property Valad Property Group

ATO Building Box Hill, Vic Sep-15 $156.0m FG Asset Management Cromwell

Australian Federal Police Building Sydney CBD, NSW Sep-15 $150.0m Commerzbank Kinder Investments

114 William Street Melbourne CBD, Vic Aug-15 $125.1m Straits Real Estate Kyko Group

The Forum St Leonards, NSW Aug-15 $115.0m Abacus Property Group Challenger Life

ATO Building Northbridge, WA Aug-15 $101.0m Warrington Property/Goldman Sachs Deka Immobilien

19 Harris Street Sydney CBD, NSW Jul-15 $91.9m Grocon LaSalle Investment Management

MARKETVIEW

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy,

we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness.

This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior

written permission of CBRE.

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Australia Office, Q3 2015 New CBD office supply is ... · • The sale of Investa’s portfolio of...

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