Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital

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Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital
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  21 April 2017

  Report for Centuria Property Funds Limited

  Metropolitan Office Market Analysis
  1231 Sandgate Road, Nundah QLD
Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital
Craig Clayworth                  Carl Knaggs                    David Skerrett
National Director, Valuations    Director, Consultancy          Associate Director, Consultancy
Colliers International           Colliers International         Colliers International
Level 30, One One One            Level 30, One One One          Level 30, One One One
111 Eagle Street, Brisbane       111 Eagle Street, Brisbane     111 Eagle Street, Brisbane
Direct +61 7 3370 1724           Direct +61 7 3370 1728         Direct +61 7 3370 1730
Mobile + 61 423 828 236          Mobile + 61 416 765 636        Mobile +61 452 335 483
craig.clayworth@colliers.com     carl.knaggs@colliers.com       david.skerrett@colliers.com

Lynn Johnsen                     Sophie Tieman
Senior Consultant, Consultancy   Assistant Valuer, Valuations
Colliers International           Colliers International
Level 30, One One One            Level 30, One One One
111 Eagle Street, Brisbane       111 Eagle Street, Brisbane
Direct +61 7 3370 1793           Direct +61 7 3370 1725
Mobile +61 431 268 203           Mobile +61 401 884 167
lynn.johnsen@colliers.com        sophie.tieman@colliers.com

Colliers International                                          Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD
Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital
Contents
01 INTRODUCTION                                                                                                  1

02 KEY FINDINGS                                                                                                  3

03 LOCATIONAL ANALYSIS - NUNDAH
3.1 Locational Profile                                                                                           6
3.2 Demographic Pofile                                                                                           9

04 ASSET OVERVIEW
4.1 Site Details                                                                                               13
4.2 Building Characteristics                                                                                   13
4.3 Tenants                                                                                                    14
4.4 SWOT Analysis                                                                                              14

05 BRISBANE OFFICE MARKET OVERVIEW
5.1 Brisbane CBD Office Markets                                                                                16
5.2 Brisbane Fringe Office Markets                                                                             18
5.3 North Brisbane Metropolitan Office Market                                                                  21
5.4 Competitive Analysis                                                                                       25
5.5 Indicative Leasing Strategy (Hypothetical Scenario)                                                        27

Colliers International                               Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD
Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital
INTRODUCTION

Colliers International   Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD
Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital
01                          Introduction

                                              The purpose of this report is to provide a detailed overview
                                              of the Brisbane metropolitan office market as it relates to
                                              Centuria’s purchase of 1231 Sandgate Road, Nundah.

Introduction
Colliers International Consultancy Pty Ltd (Colliers) has been commissioned by Centuria Property Funds Limited
(Centuria) to undertake an analysis of the Brisbane office market as it relates to the purchase of 1231 Sandgate
Road, Nundah (Property).

Purpose
The purpose of this report is to provide market research and commentary for Centuria which sets out the following:
            Locational characteristics of Nundah;
            Asset overview;
            An overview of the Brisbane office markets and specifically Brisbane CBD, Inner-City and North Brisbane
             Office markets;
            Competitor analysis including recent metropolitan office deals (leasing);
            Hypothetical leasing strategy; and
            Summary findings about current office market environment.

Assumptions
In undertaking this analysis, we have been instructed by Centuria and have based and relied on the following broad
assumptions in preparing this report:
            That the Property is fully tenanted with a WALE of 9.4 years (as at 1 July 2017);
            The analysis provided is general in nature and is based on Colliers International market knowledge and does
             not reflect any special considerations or circumstances; and
            The market information provided is current as at the time it is written.
In the event that any of the above assumptions are incorrect or have changed then it is requested that Colliers
International be notified in writing, as it could change the scope and services rendered to the client.

Colliers International                                                 Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 1
Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital
KEY FINDINGS

Colliers International   Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 2
Metropolitan Office Market Analysis - 1231 Sandgate Road, Nundah QLD - Centuria Capital
02                        Key Findings

Key Findings
Summary
 Colliers International considers that the Property:
     ›    is of an A Grade metropolitan office standard and is superior to anything that is currently available in the
          Nundah, Brisbane Airport, Hamilton and Chermside locations.
     ›    is well located and has good access to high frequency rail and bus public transport options;
     ›    has good access to major road networks including Sandgate Road, Gateway Motorway and Airport Link Tunnel
          and is within 15mins drive of the Brisbane CBD;
     ›    has favourable locational characteristics and amenity including being next door to the Nundah Village
          Shopping Centre and within 700m radius from the Mirvac owned Toombul shopping centre;
     ›    has large flexible floor plates and good natural light and would likely appeal to a variety of tenant types who
          have larger flexible floor space requirements.
A breakdown of the relevant findings (by category) are shown below.

Location
 Nundah is well located approximately 8km north east of the Brisbane CBD.
 Nundah is serviced by high frequency train and bus services.
 Nundah is proximate to the Brisbane Airport, Airport Link Tunnel and Gateway Motorway and within 15mins drive
  of the Brisbane CBD.
 Nundah provides good amenity with supporting retail and food and beverage offerings in the Woolworths
  anchored Nundah Village shopping centre as well as being proximate to Toombul shopping centre which was
  recently acquired by Mirvac. There are also a number of educational facilities (primary and secondary schools)
  within a 700m radius of the building.

Socio-Demographic
 According to Queensland Treasury, the estimated resident population of Nundah (SA2) was 11,816 persons as
  at 30 June 2015 and has showed an average annual growth rate 2.2% over the 5 years to 2015 and 3.5% over
  10 years which is higher than the Brisbane average of 1.6% and 1.8% respectively over the same periods.

Asset
 The Property is a high quality 5 Star Green Star designed (v3) ‘A’ Grade Metro Office Building, comprising 144
  secure basement car parking, ground floor retail accommodation, mezzanine retail accommodation and six upper
  levels of office accommodation. The building currently has a strong 4.5 Star NABERS Energy and 4.5 Star
  NABERS Water rating.

Colliers International                                              Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 3
 The Property provides 10,224 square metres of A Grade office space accommodation. The large floor plates
  range in sizes of up to 2,150 square metres and offer good natural light and flexibility for tenant requirements.
  The high car parking ratio and end of trip facilities are also positives for the building.
 The Property is close to passenger rail services at Nundah station and has a vibrant amenity offering in and
  around the Nundah Village shopping centre for food and dining and other services.

Office Market
 Nundah falls within the North Brisbane Metropolitan Office Market. Currently, the North Brisbane Metropolitan
  Office Market is performing better than the overall Brisbane Fringe market, with an assessed vacancy rate of
  8.81% versus 12.60%. This is likely to be due to the limited supply within the North Brisbane Office Market,
  locational characteristics and access to public transport, roads and the airport.
 New supply in the North Brisbane markets, particularly the Urban Renewal areas, has moderated in the last 3
  years and there has been below trend levels of supply. Currently only 900 Ann Street, Fortitude Valley (which is
  100% committed to Aurizon) and Lendlease’s K5 in the RNA Showgrounds are under construction.
 Any new office development will be demand led and subject to high tenant pre-commitment levels and incentives,
  particularly for the Brisbane Airport, Hamilton and Chermside Precincts. This is likely to keep new competing office
  supply in the short-to-medium term constrained, and will underpin current rental levels and future growth, should
  white collar growth improve as forecasted.

Competitive Analysis
 In terms of competition, Colliers considers that the Property is of a superior A Grade office quality to anything that
  is currently available in Nundah, Brisbane Airport, Hamilton and Chermside.
 The most comparable product to the Nundah Property is the larger format, A Grade premises available in Fortitude
  Valley/Newstead (Urban Renewal precinct), where gross face rentals of $520 - $600/m2 are achievable.

Leasing
 Whilst the Property is fully tenanted, on a hypothetical leasing basis, the building design and configuration would
  appeal and support tenants whom:
     ›    have larger flexible floor space requirements (i.e multi-floor or whole floor occupiers);
     ›    who do not require a CBD presence;
     ›    have a north Brisbane locational requirement; and/or
     ›    require proximity to major road, passenger rail services, airport and port infrastructure and access to the CBD.

 On a hypothetical leasing basis, Colliers International considers that the Property may appeal to the following
  tenant types:
     ›    State or Federal Government- e.g ATO, Department of Education etc.
     ›    Semi Government Tenants – e.g Energex, Ergon
     ›    Large engineering and civil contractors – e.g Aecom, Golding, Clough
     ›    Mining/ Energy Companies
     ›    Travel or Airport Related Companies – e.g Virgin Australia, Flight Centre, Boeing
     ›    Banking, Superannuation and Insurance groups – e.g Bank of Queensland, Sunsuper, Allianz
     ›    Education and Training Providers
     ›    IT and Telecommunication companies

Colliers International                                                Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 4
LOCATIONAL ANALYSIS -
NUNDAH

Colliers International   Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 5
03                    Locational Analysis -
                                        Nundah

                                        Nundah is located approximately 8km
                                        north east of the Brisbane CBD.

3.1 Locational Profile
Location
The Site is located centrally within Nundah which is approximately 8km radially north east of the Brisbane CBD.
Figure 1 – Location Map

                                               Nundah
                                                                               Brisbane Airport

                                                                                      Gateway
                         Brisbane CBD                                                 Motorway

Colliers International                                         Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 6
Figure 2 – Site in context of surrounding uses/activities

                                                                            Nundah Train
                                                                            Station

                                                         Subject Site
                            Nundah State
                            School (Primary)
                                                                     Nundah Village
                                                                     Shopping Centre

                          St Joseph’s          Mary Mackillop
                          Nundah (Primary)     College (Secondary)

                                                                                                        700m radius

                                 Toombul Train
                                 Station

                                                            Toombul Shopping
                                                            Centre (Mirvac)

                                                 Airport Link Tunnel Entrance/Exit (Road)

Colliers International                                             Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 7
Figure 3 – Nundah Suburb Boundary Map

Access and Movement
Nundah is connected by road and rail, which are the primary modes of transport. The bus network provides secondary
transport access to Nundah.
Road
Sandgate Road is the primary north/south connector which runs through the centre of Nundah and carries an average
annual daily traffic count of 40,600 cars (DTMR, 2014). There is an underground bypass (Nundah bypass) which
directs primary through traffic underneath the Nundah primary business area (which includes the area at which the
subject site is located).
The eastern boundary of Nundah is Southern Cross Way which is an off-shoot connector of the Gateway Motorway.
The southern boundary of Nundah is the entry/exit tunnel to the Airport Link Tunnel which connects through to Bowen
Hills and CBD and other major road tunnels (Clem 7 to the south and Legacy Way to the west).
Rail
Nundah contains two train stations Toombul station (opposite Toombul shopping centre) and Nundah station
(adjacent to the Property), which are six stops from Brisbane Central rail station.

Commercial Activity Centres
The two primary commercial centres within Nundah are the areas around the Nundah Village shopping centre and
the subject site and the Toombul shopping centre to the south.
Nundah Village is a Woolworth’s anchored neighbourhood centre that directly adjoins the Property.
Toombul shopping centre comprises 44,000sqm of retail and is located on a 10Ha development and was purchased
by Mirvac in 2016 for $228m. Toombul is anchored by Coles, Kmart, Target, Aldi and Bunnings.

Colliers International                                         Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 8
3.2 Demographic Profile
Population and Growth
According to Queensland Treasury, the estimated resident population of Nundah (SA2) was 11,816 persons as at
30 June 2015 and has showed an average annual growth rate of 2.2% over the 5 years to 2015 and 3.5% over 10
years as compared to the Brisbane average of 1.6% and 1.8% respectively over the same periods.
According to Queensland Government Population Projections, the average annual population growth rate of Nundah
from 2011 through to 2036 is forecasted at 1.3%.

  Locality                           2011           2016      2021        2026         2031          2036         Average Annual
                                                                                                                  Growth (2011-2036)
  Projected Population
  Nundah (SA2)                       10,896         11,930    12,927      13,720       14,537        15,064       1.3%

From a demographic perspective, 43% of the resident population is within the 25-44 year age cohort as compared
to 33% across the Brisbane LGA.

Household Income and Size
According to the ABS, the median total personal household income is approximately 10% higher in Nundah than the
Brisbane median, however the total family income is about 5% lower.

  Region                           Median Total Personal     Median Total Family         Median Mortgage           Average Household
                                   Income ($/month)          Income ($/month)            Repayment                 Size (people)
                                                                                         ($/month)
  Nundah                           $3,056                    $7,092                      $2,031                    2.0
  Brisbane                         $2,784                    $7,492                      $2,100                    2.6

Employment
According to the ABS, the largest proportion of employed persons within Nundah was in the Health Care and Social
Assistance category at nearly 12%.

  Top 5 Employment by Industry Classification                  Nundah SA2
                                                               (% of employed persons)

  1.    Health Care and Social Assistance                      11.6%

  2.    Professional, Scientific and Technical Services        10%

  3.    Public Administration and Safety                       9.2%

  4.    Transport, Postal and Warehousing                      8.4%

  5.    Retail Trade                                           8.3%

In terms of employment by occupation, the largest proportion of people employed were identified as professionals
at nearly 27% and clerical and administrative workers at 19.2% of the working population.

Colliers International                                                     Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 9
Residential Sales and Median Dwelling Price
According to Core Logic, there were 410 sales transactions in Nundah in the 12 months to 31January 2017 with a
median dwelling price of $470,000.
Houses made up around 30% (120) of all sales and had a median sales price of $651,000 and units comprised 52%
(213) of all sales and had a median of $468,000 over the period. The balance of sales transactions related to
commercial, land or unspecified property types.

Building Approvals
According to the ABS, there were 405 residential dwelling approvals in the 12 months to 31 January 2017. Of these
building approvals, 384 (95%) were for dwellings other than detached houses (e.g apartments).
Figure 4 – Nundah Socio-Demographic Profile – Census 2011

                                                     Nundah SA2            Greater Brisbane                   Queensland

 Population and Households

    Total Persons                                         10,400                   2,066,000                    4,319,300

 Average Annual Income

    Per Household                                        $89,600                     $94,100                      $86,800
    Per Capita                                           $43,900                     $35,600                      $33,700

 Age Distribution (%)

    0-14                                                    12.1                         20.1                         20.3

    15-24                                                   14.6                         14.5                         13.6

    25-44                                                   40.6                         29.6                         27.9

    45-64                                                   21.6                         24.1                         25.2

    65+                                                     11.1                         11.7                         13.1

 Employment (%)

    In Labour Force                                         75.2                         68.5                         66.9

    Unemployed                                               4.9                          5.9                          6.0

    White Collar Occupations                                75.0                         70.4                         66.6

    Employed per Household                                   1.2                          1.3                          1.2

 Dwelling Structure (%)

    Detached                                                31.8                         79.1                         78.6

    Semi-detached                                           12.0                          8.6                          8.4
    Flats/Units                                             56.1                         11.7                         11.8

    Other                                                    0.1                          0.7                          1.3

 Dwelling Tenure (%)

    Owner                                                   18.0                         27.9                         29.7
    Purchaser                                               26.8                         37.6                         35.4

    Renter                                                  54.7                         33.7                         34.0

 Mobility (%)

    No Car                                                  15.3                          8.0                          7.4
    1 Car                                                   49.0                         36.4                         36.5

    2+ Cars                                                 35.7                         55.6                         56.1

Colliers International                                       Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 10
Education (%)

    Bachelors Degree              20.6                        15.8                         12.8

    Grad Dip./Grad Cert.           2.5                         1.9                          1.6

    Postgraduate Degree            5.3                         4.2                          3.0

 Household Type (%)

    Couples with Children         16.6                        32.8                         31.0

    Couples without Children      24.0                        27.0                         28.6

    Single Parent Household        8.8                        11.8                         11.6

    Lone Person Household         38.3                        21.8                         22.8

    Group/Other Household         12.3                         6.7                          5.9

 Ethnicity (%)

    Only English spoken at home   82.1                        86.1                         89.7

Colliers International            Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 11
ASSET OVERVIEW

Colliers International   Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 12
04                    Asset Overview

4.1 Site Details
Based on our preliminary desktop searches, the Property comprises the following:

 1231 Sandgate Road, Nundah           Lot Description        Lot 1 on SP245049

                                      Land Area              5,597m2

                                      NLA                    Office – 10,224m2
                                                             Retail – 2,757m2
                                                             Total 12,981m2

                                      Road Frontages         Sandgate Road – 42m (approx.)
                                                             Aspinall Street – 78m (approx.)

                                      Carparks               144 car spaces

                                      Major Tenants          Energex – 8,755m2
                                                             Powerlink – 1,469m2
                                                             Go Health Clubs – 2,017m2

4.2 Building Characteristics
The subject Property forms part of the Circa Nundah mixed use development and is bound by Sandgate Road and
Aspinall Street, within the suburb of Nundah, approximately 9.1 kilometres (by road) north of the Brisbane General
Post Office (GPO).
The Property is a 5 Star Green Star designed (v3) ‘A’ Grade Office Building, comprising secure basement car parking,
ground floor building entry, lift foyer and retail accommodation, mezzanine retail accommodation and six upper levels
of office accommodation. The Property currently has a 4.5 Star NABERS Energy and 4.5 Star NABERS Water rating.
The Property provides secure basement parking for approximately 144 cars, 2,757 square metres of ground floor
and mezzanine retail accommodation and 10,224 square metres of upper level A Grade office accommodation. The
floor plates of the upper level office accommodation range in size up to 2,150 square metres and have been designed
around a central service core and internal light atrium.
Ancillary improvements include storage facilities, end of trip amenities and bicycle storage within the basement,
additional public male and female ground floor toilet amenities and on site landscaping.

Colliers International                                         Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 13
4.3 Tenants
The Property is underpinned by leases to Energex Limited (69.13%), Powerlink Queensland (11.60%) and Go Health
Clubs (15.93%) by area.

Tenancy Details

 No. of Tenants: 12                                   Average Lease Duration                     7.07 years

 Major Tenants                                        Weighted Lease Duration (Area)             9.48 years

 Energex Limited                     8,755.00 m²      Weighted Lease Duration (Income)           9.34 years

 Powerlink Queensland                1,469.00 m²                               Current Vacancy: 0.00%

 Go Health Clubs                     2,017.00 m²

 Nundah Village Dental               204.00 m²                Major Tenant Composition by Area

 Edo Australia Pty Ltd (Sushi Edo)   113.00 m²                                               Remainder of
                                                                                            Tenanted NLA;
                                                                                                3.34%
 Remainder of Tenanted NLA           423.00 m²                             Go Health
                                                                         Clubs; 15.93%
 Vacant NLA                          -

 Total NLA                           12,981.00 m²

                                                                     Powerlink
                                                                    Queensland;
                                                                      11.60%

                                                                                                              Energex
                                                                                                              Limited;
                                                                                                              69.13%

4.4 SWOT Analysis
Strengths                                                   Weaknesses
 High quality building with long-term Government            Central atrium and open nature, will not appeal to all
  leases.                                                     tenants, if the building was to be multi let in the future.
 Proximity to major road and passenger rail                 Lower ground floor retail less desirable to tenants.
  infrastructure.
 Established surrounding retail amenity.
 Large format floor plates with good natural light and
  suburban CBD views (on the upper levels).
 Access to Brisbane Airport and Port of Brisbane and
  15 min drive from the Brisbane CBD via Airport Link
  Tunnel.
 Approximately 9.1 km from the Brisbane General Post
  Office.

Opportunities                                               Threats
 Continued residential growth in and around Nundah.         Development of competing facilities in the medium to
 In terms of quality office accommodation, there is no       long term including office park/campus style
  current competition and limited future competition in       developments.
  Nundah and Chermside.                                      Changes in structural configuration preferences to
                                                              office workspace environments, i.e. reduction of floor
                                                              space demand in the future.

Colliers International                                           Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 14
BRISBANE OFFICE MARKET
OVERVIEW

Colliers International   Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 15
05                     Brisbane Office Market
                                         Overview

                                         An office market analysis has been
                                         undertaken which considers the relevant
                                         Brisbane office markets.

Office Market Overview - Brisbane
The overall Brisbane office market is the third largest office market in Australia, and comprises the Central Business
District (CBD), adjacent fringe office precincts and major metropolitan centres, such as Chermside and Upper Mt
Gravatt.

Figure 4– Relevant Brisbane Office Markets

Colliers International                                          Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 16
5.1 Brisbane CBD Office Markets
Key Indicators

Key Market Indicators – CBD Market (Property Council of Australia – Office Market Report)

                                               Jul-16            Jan-17                        % Change

Stock (m2)                                     2,261,878         2,280,055                     0.8%

Vacancy (m2)                                   381,427           349,556                       -8.36%

Vacancy (%)                                    16.9%             15.3%                         -

Annual Net Absorption (m2)                     43,230            94,601                        118.83%

New Supply (m2)                                115,134           75,853                        -34.12%

Market Overview
The Brisbane CBD office market is the largest and most established office market in Queensland. It comprises four
major office precincts, including: Financial Precinct (Golden Triangle), Government Precinct, Retail Precinct and
North Quarter, as well as the minor Midtown and Uptown transition areas.
The Brisbane CBD office market has increased by 30% over the 10 years to January 2017. The majority of stock can
be currently classified (according to the PCA), as either A Grade (40%) or B Grade (33%).

                                       Brisbane CBD Stock Levels (sqm)
                         1,000,000
                          900,000
                          800,000
                          700,000
                          600,000
                          500,000
                          400,000
                          300,000
                          200,000
                          100,000
                                0
                                     Premium       A-Grade   B-Grade       C-Grade          D-Grade
                                      Grade

According to the Property Council of Australia (PCA) the Brisbane CBD office vacancy rate declined from 16.9% in
July 2016 to sit at 15.3% as at January 2017. This is the first downward movement in vacancy since July 2015.
Contributing to the decline, premium grade vacancy fell from 21.1% in July 2016 to sit at 12.2% as at January 2017.
Similarly, A grade office vacancy also declined from 13.9% to 11.9% over the same period. In contrast, vacancy for
secondary grade stock B and C grades both increased over the period with both siting at just under 20% as at January
2017.

Colliers International                                          Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 17
Looking forward, we anticipate prime vacancy to decrease gradually in the short term as tenants seek to upgrade
their office accommodation, driven by high incentives and low effective rents on offer. Our forecasts show that
vacancy is not likely to lift again until the middle of 2019 when 300 George Street is anticipated for completion
(assuming a 30% pre-commitment at time of completion).

Rental Forecast
A protracted period of soft fundamentals in the leasing market led to a steady continuance in high incentives for both
prime and secondary space during the first half of FY2017, albeit underpinning prevailing gross rental levels. We
expect forecast white collar growth to drive demand for office space over the next three years, reducing vacancy and
support conditions suitable for rental growth in the medium term.

5.2 Brisbane Fringe Office Markets
Key Indicators

Key Market Indicators – Brisbane Overall Fringe Market (Property Council of Australia Office Market Report)

                                        Jul-16                    Jan-17                     % Change

Stock (m2)                              1,195,287                 1,209,374                  1.2%

Vacancy (m2)                            154,625                   152,177                    -1.58%

Vacancy (%)                             12.9%                     12.6%                      -

Annual Net Absorption (m2)              -6,378                    15,462                     342.43%

New Supply (m2)                         0                         23,800                     -

Colliers International                                          Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 18
Market Overview
The Brisbane Fringe Office Market comprises five distinct precincts, Urban Renewal, Inner South, Milton, Spring Hill
and Toowong, and now provides a critical mass of office supply and amenity, which is a genuine alternative to the
CBD. Assets within the Brisbane Fringe are characterised for having large floor plates, more affordable market rents
than the CBD, high car parking ratios and green building credentials. Despite wavering economic conditions,
Brisbane’s Fringe office market has remained resilient with the overall vacancy rate, according to the Property Council
of Australia, falling over the last six months from 12.9% in July 2016 to sit at 12.6% as at January 2017. Additionally,
vacancy for A-Grade stock over this period fell from 11.6% to 11.2%.

                                       Brisbane Fringe Stock Levels (sqm)
                    1,000,000

                         900,000

                         800,000

                         700,000

                         600,000

                         500,000

                         400,000

                         300,000

                         200,000

                         100,000

                              0
                                   A-Grade        B-Grade               C-Grade                 D-Grade

The below graph shows vacancy for each Fringe precinct for July 2016 and January 2017. Both Inner South and
Spring Hill experienced an increase in vacancy with the remainder precincts all recording a decline. The Brisbane
Fringe office vacancy rate at 12.6% still sits below that of the Brisbane CBD office market at 15.3% as at January
2017 and is expected to improve with a low future supply pipeline and increasing white collar demand.

Colliers International                                           Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 19
Brisbane Fringe Office Vacancy by Grade (%)
                                                            Jul-16 Vs Jan-17
                 30%

                 25%

                 20%

                 15%

                 10%

                   5%

                   0%
                                   A-Grade                 B-Grade                 C-Grade                  D-Grade

                                                                Jul-16    Jan-17

                    Source: PCA OMR, Jan-17

                                              Brisbane Fringe Office Vacancy by Precinct (%)
                                                            Jul-16 Vs Jan-17
                 25%

                 20%

                 15%

                 10%

                   5%

                   0%
                              Inner South             Milton         Spring Hill         Toowong           Urban Renewal

                                                                                                        Jul-16     Jan-17

                    Source: PCA OMR, Jan-17

Colliers International                                                       Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 20
5.3 North Brisbane Metropolitan Office Market
The North Brisbane Metropolitan Office Market comprises the following areas:
 Urban Renewal Areas (Fortitude Valley, Bowen Hills, Newstead),
 Hamilton Northshore,
 Brisbane Airport; and
 Chermside.
Nundah is within the North Brisbane Metropolitan market.

1. Urban Renewal (Fortitude Valley, Newstead and Bowen Hills)

Urban Renewal – Key Market Indicators (Property Council of Australia – Office Market Report)

                                         Jul-16                    Jan-17                            % Change

Stock (m2)                               484,156                   480,726                           -0.71%

Vacancy (m2)                             50,284                    47,672                            -5.2%

Vacancy (%)                              10.4%                     9.9%                              -

New Supply         (m2)                  0                         0                                 0

The Urban Renewal precinct skirts the northern side of the Brisbane River to the east of the CBD comprising the
suburbs of New Farm, Teneriffe, Fortitude Valley, Bowen Hills and Newstead. The precinct is more geographically
dispersed than other large office markets such as Milton and Spring Hill and is located approximately 2-4km from
Brisbane’s CBD.
This precinct has grown substantially over the last decade with significant new A grade office developments along
with greater amenity and better car parking ratios enticing major corporates to relocate from Brisbane’s CBD and
other fringe precincts.
In terms of transport options, Fortitude Valley and Bowen Hills are both connected by train however it is noted that
much of the office accommodation in Bowen Hills and Newstead in particular is located a significant distance from
the train stations.

2. Chermside

Chermside – Key Market Indicators (Property Council of Australia – Office Market Report)

                                        Jul-15                    Jan-16                         % Change

Stock (m2)                              34,298                    34,298                         0%

Vacancy (m2)                            3,111                     2,928                          -5.9%

Vacancy (%)                             9.1%                      8.5%                           -

New Supply (m2)                         0                         0                              0

Chermside is identified as a major suburban business centre located approximately 12 km’s from the CBD and
dominated by Westfield Chermside, one of the largest shopping centres in Australia. Office accommodation/stock
within this precinct is limited and primarily comprises the ATO complex and older style B Grade office developments.

Colliers International                                         Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 21
3. Hamilton (Hamilton Northshore)

 Hamilton – Key Market Indicators (Property Council of Australia – Office Market Report)

                                           Jul-16                    Jan-17                     % Change

 Stock (m2)                                22,962                    22,962                     0%

 Vacancy (m2)                              3,204                     2,019                      -37%

 Vacancy (%)                               13.9%                     8.8%                       -

 New Supply (m2)                           0                         0                          0

Located 6 kilometres radially from the Brisbane CBD, Hamilton (comprising BTP Northshore) is a significant urban
waterfront redevelopment project which covers 304 hectares of former industrial and port land along the Brisbane River.
The majority of Hamilton Northshore is to be developed for residential and mixed use retail and leisure and
entertainment activities.
BTP Northshore Hamilton is an office park development within the Hamilton Northshore project and will provide
approximately 140,000 sqm of commercial office space, in close proximity to the Australia Trade Coast, Brisbane Airport
and CBD.
Hamilton Northshore whilst an emerging precinct currently lacks retail amenity and support services and has only limited
public transport options.
Office accommodation within this precinct is primarily made up of ‘design and construct’ developments with smaller
format floor plates and high levels of on-site car parking.

4. Brisbane Airport

 Brisbane Airport – Key Market Indicators (Property Council of Australia – Office Market Report)
                                           Jul-16                    Jan-17                     % Change

 Stock (m2)                                78,284                    78,284                     0%

 Vacancy (m2)                              1,702                     1,702                      0%

 Vacancy (%)                               2.2%                      2.2%                       -

 New Supply (m2)                           0                         0                          0%

Brisbane Airport is 9 km’s radially from the Brisbane CBD and is the third busiest airport by aircraft movements in
Australia. From 2014-2020 the airport is undergoing the biggest aviation project in Australia, with the development
of a 3.3km long and 60m wide runway located west of and parallel to the existing runway. With additional taxiways,
navigational aids, airfield infrastructure and hundreds of hectares of airfield landscaping, this will give Brisbane the
best runway system in the country.
Brisbane Airport Corporation (‘BAC’) operates, manages and develops the Brisbane Airport under the terms of a 50
+ 49 year lease acquired from the Commonwealth Government when it privatised Brisbane Airport in July 1997. BAC
presently holds investment property assets with a market value in excess of $1 billion. Brisbane Airport occupies a
surveyed area of 2,687 hectares within the Australia Trade Coast Precinct.
Office accommodation within this precinct is primarily made up of modern ‘design and construct’ developments which
largely appeal to aviation, freight and logistics and government tenants. The majority of buildings comprise office and
warehouse style space. Development within the confines of Brisbane Airport is guided by the Brisbane Airport Master
Plan 2014.

Colliers International                                           Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 22
5. North Brisbane Metropolitan Office Market - Summary

 Brisbane Northern Metropolitan Office Indicators (Property Council of Australia – Office Market Report)

 TOTAL STOCK (sqm)
                                                                                                                                               TOTAL Northern
                Brisbane Fringe                   Urban Renewal                 Brisbane Airport           Hamilton        Chermside           Metro.

 Jan-16         1,195,287                         484,156                       78,284                     16,943          34,298              613,681

 Jul-16         1,195,287                         484,156                       78,284                     22,962          34,298              619,700

 Jan-17         1,209,374                         480,726                       78,284                     22,962          34,298              616,270

Vacancy

 North Brisbane Metropolitan Office Indicators (Property Council of Australia – Office Market Report)

 TOTAL VACANCY (%)
                                                                                                                                               TOTAL Northern
                 Brisbane Fringe                 Urban Renewal                Brisbane Airport           Hamilton          Chermside           Metro.

 Jan-16          12.80%                          11.20%                       2.50%                      19.1%             8.50%               10.32%

 Jul-16          12.90%                          10.40%                       2.20%                      13.9%             8.50%               9.38%

 Jan-17          12.60%                          9.90%                        2.20%                      8.8%              8.50%               8.81%

We note that the North Brisbane Metropolitan Office Market comprises approximately half of the Brisbane Fringe
office market and is currently performing better overall, with an assessed vacancy rate of 8.81% versus 12.60%.

Rental Forecast
Rents in the North Brisbane Metropolitan Office market have stabilised in recent years, albeit with the underpinning
support of market driven incentives, after strong growth through the 2006-08 period. The loss of development ready
land to alternate residential uses, plus high land and incentive costs, have limited office development in the last three
years. Similar to the CBD, we expect forecast white collar growth to drive demand for office space over the next three
years, reducing vacancy and support conditions suitable for rental growth in the medium term.

                                                    North Brisbane Metropolitan Office
                                                        Gross Face Rents ($/sqm)
                                                                                                                                    Forcast
                         700
                         600
                         500
                         400
                         300
                         200
                         100
                           0
                               Mar-04

                                                                                      Mar-11

                                                                                                                                    Mar-18
                                        Oct-04
                                        May-05
                                        Dec-05
                                                  Jul-06
                                                 Feb-07

                                                           Apr-08
                                                                    Nov-08
                                                                    Jun-09
                                                                             Jan-10

                                                                                      Oct-11

                                                                                                                                             Oct-18
                                                           Sep-07

                                                                             Aug-10

                                                                                               May-12
                                                                                               Dec-12
                                                                                                Jul-13
                                                                                                         Feb-14

                                                                                                                  Apr-15
                                                                                                         Sep-14

                                                                                                                  Nov-15
                                                                                                                           Jun-16
                                                                                                                           Jan-17
                                                                                                                                    Aug-17

                                                                                                                                             May-19

                                        Brisbane Fringe             Urban Renewal               Hamilton          Chermside             Airport

Colliers International                                                                          Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 23
Future Supply
Brisbane Fringe / Urban Renewal
No new supply additions are anticipated to come online in the Metro markets in 2017. Thereafter there are only two
projects anticipated in 2018 - 900 Ann Street Fortitude Valley a 21,625 sqm office building which is 100% pre-committed
to Aurizon, and K5, located at 50 King Street Bowen Hills, a 14,000 sqm office building which is set to become Australia’s
tallest Cross Laminated Timber (CLT) constructed office building, of which 50 per cent is pre-committed to
Aurecon. Whilst a number of other projects are currently in the pipeline, they are currently mooted at this stage and are
unlikely to proceed unless a significant level of tenant pre-commitment is achieved.

                                                        Brisbane Fringe New Office Pipeline
                         40,000

                         35,000

                         30,000

                         25,000

                         20,000

                         15,000

                         10,000

                          5,000

                             0
                                  900 Ann St   K5 RNA    K2/K3      11 Breakfast   301 Wickham      CDOP 7   Green Square 3   52 Alfred St
                                                                     Creek Rd

                                                        Precomm   Remaining    Mooted    Sublease

Brisbane Airport
Brisbane Airport’s latest commercial development, Five Lobelia Circle which includes commitment by the Australian
Federal Police is now complete. Currently remaining within the building is 425sqm of office located on the top floor.
The Skygate Home and Life Centre is taking shape, with a number of large format retailers expressing interest in
tenancies. The proposed development will be located adjacent to the existing DFO site.
The purpose-built office and laboratory for Hanson Construction Materials will be complete early this year. The building
is the first within the Boulevard Business Park with three remaining campus-style office sites remaining for development.

Hamilton
Puma’ Energy’s $30 million Australian headquarters was recently completed within the project and comprises a four
level A Grade 6,000sqm office building.
Looking forward, the latest addition to the precinct, 375 Macarthur Avenue, is set to open its doors in mid-2017. Also
detailed design works are underway on 381 Macarthur Avenue, a three level, 3,000sqm building with onsite café.
Any future supply is likely to be made up of ‘design and construct’ developments for specific tenants.

Chermside
There is currently only one project planned within Chermside the Wheeler Gardens St Marks Development. The current
proposal to be located at 930-950 Gympie Road, Chermside is a 23,685 sqm office/medical development.

Colliers International                                                             Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 24
Conclusion
New Supply in the North Brisbane Metropolitan markets has moderated in the last 3 years, and has been below trend
levels of supply. Currently only 900 Ann Street, Fortitude Valley (which is 100% committed to Aurizon) and Lend
Lease’s K5 in the RNA Showgrounds (50% committed) are under construction.
Any new development will be demand led and subject to high tenant pre-commitment levels and incentives,
particularly for the Brisbane Airport, Hamilton & Chermside Precincts, and therefore likely to be constrained.

5.4 Competitive Analysis
Competition
In the current office market climate, competition for A-grade and higher quality B-grade metropolitan office space
would be likely to come from the following areas:
Primary Competition
            Urban Renewal areas, particularly Newstead, Bowen Hills and Fortitude Valley.
            Inner South, including South Brisbane and South Bank.
            Hamilton Northshore – large land availability and design and construct options.

Recent North Brisbane Metropolitan Office Leasing Transactions
In assessing a comparable case study for the office component of the subject Property, we have considered a variety
of available rental evidence, a selection of which is detailed as follows:

                                 North Brisbane                                                        Rent $/m²
                                                                         Lease      Term       NLA                              Incentive
Property / Tenancy       Grade     Metro Office          Lessee                                          (Gross     Reviews                   Comparison
                                                                          Date     (years)     (m²)                             (Gross)
                                     Precinct                                                            Face)

900 Ann Street,                                     Aurizon Operations    Circa    12+5+5                            Fixed
                          A      Urban Renewal                                                18,991    $625/m²                Confidential    Superior
Fortitude Valley                                    Limited              Apr- 18    years                            3.25%

Montpelier Road,                                    St Vincent’s                                                     Fixed
                          A      Urban Renewal                           Dec-16    5 years     902      $520/m²                Circa 32%      Comparable
Albion                                              Healthcare                                                       3.50%

77 Hudson Road,                                                                                                      Fixed
                          B      Urban Renewal      Vita Group           Nov-16    7 years     2,998    $490/m²                Circa 40%        Inferior
Albion                                                                                                               3.50%

100 Wickham Street,                                                                                                  Fixed
                          B      Urban Renewal      State of QLD         Sept-16   7 years     4,980    $520/m²                Circa 36%        Inferior
Fortitude Valley                                                                                                     3.75%

515 St Pauls Terrace,                                                                                                Fixed
                          A      Urban Renewal      Careers Australia    Mar-16    2 years     1,969    $560/m²                Undisclosed    Comparable
Fortitude Valley                                                                                                     3.00%

100 Wickham Street,                                                                                                  Fixed
                          B      Urban Renewal      BJB Global Pty Ltd   Aug-15    3 years     996      $512/m²                Circa 35%        Inferior
Fortitude Valley                                                                                                     3.50%

HQ North, 520
                                                    Cunningham                                                       Fixed
Wickham Street,           A      Urban Renewal                           Jul-15    6 years     1,118    $575/m²                Circa 32%      Comparable
                                                    Lindsey                                                          3.75%
Fortitude Valley

5 Lobelia Circle,                                   Royal Flying                                                     Fixed
                          B      Brisbane Airport                        Dec-16    5 years     901      $425/m²                Circa 35%        Inferior
Brisbane Airport                                    Doctor Service                                                   3.50%

10 The Boulevard,                                                                                                    Fixed
                          B      Brisbane Airport   Hanson               Sep-16    12 years    3,054    $400/m²                Circa 31%        Inferior
Brisbane Airport                                                                                                     3.50%

Colliers International                                                             Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 25
Rent
                                 North Brisbane
                                                                          Lease     Term       NLA        $/m²                   Incentive
Property / Tenancy       Grade     Metro Office           Lessee                                                    Reviews                      Comparison
                                                                           Date    (years)     (m²)      (Gross                  (Gross)
                                     Precinct
                                                                                                          Face)

42-44 Qantas Drive,                                 Dept. Agriculture &                                              Fixed    Capital works to
                          B      Brisbane Airport                         Feb-16   5 years     4,115     $400/m²                                   Inferior
Brisbane Airport                                    Water Resources                                                  3.50%        building

Da Vinci Business                                                                                                    Fixed
                          B      Brisbane Airport   Officeworks           Jan-16   5 years      309      $320/m²                 $110,000          Inferior
Park, Brisbane Airport                                                                                               3.5%

                                                                                                                                 3 months
371 Macarthur                                                                                                        Fixed
                          B      Hamilton           Commscope             Oct-16   3 years      185      $415/m²                rent free +        Inferior
Avenue, Hamilton                                                                                                     3.0%
                                                                                                                                $60k fitout

405 Macarthur                                                                                                                    $500,000
                                                    Australian                                                       Fixed
Avenue, Northshore        B      Hamilton                                 Jan-16   16 years    1,000     $415/m²                  capital          Inferior
                                                    Childcare                                                        4.0%
Hamilton                                                                                                                        contribution

371 Macarthur                                                                                                        Fixed       Turnkey
                          B      Hamilton           Wabtec                May-15   7 years      184      $401/m²                                   Inferior
Avenue, Hamilton                                                                                                     3.5%          fit out

371 Macarthur                                                                                                        Fixed       Turnkey
                          B      Hamilton           Fujitsu               May-15   7 years      400      $403/m²                                   Inferior
Avenue, Hamilton                                                                                                     4.0%          fit out

365 Macarthur                                                                                                       Annual
                          B      Hamilton           Puma Energy           Jun-15   15 years    6,019     $393/m²                    Nil            Inferior
Avenue, Hamilton                                                                                                      CPI

371 Macarthur                                       Sandhills                                                        Fixed
                          B      Hamilton                                 Jan-15   5 years      828      $398/m²                Circa 32%          Inferior
Avenue, Hamilton                                    Publishing                                                       3.5%

Hamilton Road,                                      Brisbane City                                                    Fixed
                          A      Chermside                                Jan-17   15 years    6,000     $475/m²                   Fitout          Inferior
Chermside                                           Council                                                          3.50%

831 Gympie Road,                                    Department of                                                   Annual
                          B      Chermside                                Aug-16   6 Years     2,886     $393/m²                Circa 35%          Inferior
Chermside                                           Health                                                            CPI

                                                    Payroll Portfolio
831 Gympie Road,                                                                                                    Annual
                          B      Chermside          Health Support        Aug-16   6 years      703      $400/m²                Circa 35%          Inferior
Chermside                                                                                                             CPI
                                                    QLD

                                                    Department of
831 Gympie Road,                                                                                                     Fixed
                          B      Chermside          Housing & Public      Jun-15   3 years      372      $417/m²               Undisclosed         Inferior
Chermside                                                                                                            4.00%
                                                    Works

Conclusion
In terms of competition analysis, we believe that given the A Grade quality and nature of the accommodation provided
by the subject Property, it is of a superior standard to anything currently available in Nundah, Brisbane Airport,
Hamilton and Chermside.
It is most comparable to the larger format, A Grade premises available in Fortitude Valley/Newstead (Urban Renewal
precinct), where gross face rentals of $520 - $600/m2 are achievable.

Colliers International                                                             Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 26
5.5 Indicative Leasing Strategy (Hypothetical Scenario)
It is noted that the Property is fully tenanted and has a weighted lease duration (area) of 9.4 years (as at 1 July 2017).
Centuria has requested that Colliers provide a hypothetical leasing strategy in order to understand the types of
tenants who might have an interest in an office building of this grade and in this location.
Given the remaining terms on the major head leases are well beyond forecasting periods, we are not able to foresee
the types of tenants or the competitive profile as at the time that the building may become vacant and as such, our
analysis is based on tenants, space requirements and competitor offerings in the current market.

Site and Building
The Property is of an A-grade metropolitan office standard and has a 4.5 Star NABERS Energy and 4.5 Star NABERS
Water rating.
The building is close to passenger rail services at Nundah station and has a vibrant amenity offering in and around
the Nundah centre for food and dining and other services. The location is proximate to the Brisbane Airport, Airport
Link Tunnel and Gateway Motorway. The building is within 15mins of the Brisbane CBD.
The building provides a high car parking ratio.

Target Tenants
The building design and configuration is supportive of tenancies with larger space requirements who do not require
a CBD presence and/or those tenants who require a north Brisbane location with proximity to major road, rail, airport
and port infrastructure.
Colliers International considers that the Property would be suitable to the following tenant types:
            State or Federal Government- e.g ATO, Department of Education etc.
            Semi Government Tenants – e.g Energex, Ergon
            Large engineering and civil contractors – e.g Aecom, Golding, Clough
            Mining/ Energy Companies
            Travel or Airport Related Companies – e.g Virgin Australia, Flight Centre, Boeing
            Banking, Superannuation and Insurance groups – e.g Bank of Queensland, Sunsuper, Allianz
            Education and Training Providers
            IT and Telecommunication companies
Note: The examples provided are for information purposes only and are based on Collier’s market knowledge and/or are existing tenants in other
locations who have significant office space requirements outside of the Brisbane CBD.

In the event that a whole of building occupier could not be procured, then the suggested tenancy targets would be
for:
            Larger anchor tenants for the Energex space (8,700sqm) which includes the central atrium/stairwell area.
            Various private commercial tenants with a preference for larger full floor and flexible tenancies (circa 1000
             sqm).
            Potential for shared office (co-working style tenants) who may have larger space requirements.

Colliers International                                                       Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 27
Colliers International Brisbane
                                                  Level 30, ONE ONE ONE
                                                  111 Eagle Street
                                                  Brisbane QLD 4000
                                                  +61 7 3229 1233
                                                  www.colliers.com.au

Colliers International   Centuria Property Funds Limited 1231 Sandgate Road, Nundah QLD 28
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