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October 2015 Month in Review
Contents Feature – Smokin’ hot price points 3 QS corner 4 Commercial - Office 5 Residential 22 Rural 54 Market Indicators 60
Month in Review
October 2015
Smokin’ hot price points
The best performing sectors around the nation.
There’s one thing we should all Wouldn’t it be nice to know exactly what markets are They’ve scoured their hometowns to see exactly
being describing when we hear these generalisations. where buyers are raising their hands en-masse to
realize about property markets - A bit of knowledge, a broadening of our intelligence score themselves bricks and mortar.
they aren’t simple. wouldn’t hurt. If nothing else, it’ll allow us to hold a
Not to be outdone in the knowledge departments,
few ears captive at the next family barbeque. Any
Granted there’s things like ‘herd mentality’ and FOMO our commercial team has come together to tell you
Johnnie-cum-lately can say ‘Isn’t Melbourne having a
that make the art of predicting price movements a bit all about the Office market – or, more specifically,
cracking year’, but won’t you look like a clever-clogs
more comfortable, but the myriad of property types, office development and construction around Oz.
with a statement about exactly where the big drivers
price points and localities that combine under the Here is your instruction manual on where new
are in the city and what price points put you among
single term ‘Local property market’ demand scrutiny. buildings for office workers are going up in each
the players. They’ll be forming a circle around your
Giving a general capital gain growth rate for our and every market. Both the interesting projects
fold out chair, passing you another cool beverage and
cities may create a great sound bite, but anyone who underway, and refurbishments. There’s also an office
hanging for your next piece of market intelligence.
studies real estate knows, not all property is playing market sector rundown as well as a few opportunities
at the same grade. Knowing which sectors are firing in markets across highlighted throughout these pages.
the nation is also a highly valuable tool. Not only can
Think about is – you can’t make it through a week So dig in an see where the smokin’ hot sector are
you see where you have to compete most to land an
without someone pontificating like a hillbilly Einstein, sitting in each and every Australian location. Of
investment, but it will signpost which sector might be
‘Geez! Sydney’s property is getting real expensive!’. course if you want to apply the sunscreen and head
the next to go. Is first homebuyer activity picking up?
Frustrating because there’s tens of thousands of out into the scorching exposure of capital gains,
Might be that second homebuyers are about to start
individual property transactions that actually go don’t forget to call ahead to our property lifesavers
showing their enthusiasm because they’re getting
Feature
into making that one blanket statement. A billion here at Herron Todd White. We can let you know how
extra dollars from selling.
synapses fired between buyers and sellers, with all conditions look so you can best protect yourself – lest
the nuances of negotiation, all so someone can sum it Given how important this knowledge is, we asked ye should be burnt!
up in a basic five-word statement. our lasses and lads to tell us the good stuff about
which markets sector are running red hot right now.
3Month in Review
October 2015
QS Corner – Capital Gains Tax for investors
When an investor sets out to enter the property Professionally qualified valuers can provide this Many Australian investors, whether living in Australia
market and invest their money in real estate, they market valuation. A professional will ensure that a or overseas, can claim depreciation on investment
generally find themselves investigating the best correct cost base and market value are attributed property to help minimise their tax liability. The
ways to capitalise on that investment and minimise and provide the necessary evidence on the sale of ATO allows depreciate of investment properties as
the amount of tax they pay. The Australian Taxation that property. a deduction against any income generated from the
Office (ATO) defines a capital gain - or capital loss - is property. These deductions essentially allow claims
When an asset is sold, you are liable for CGT if
“the difference between what it cost you to get an to reduce the tax payable on assessable income.
your capital gain exceeds your capital loss in any
asset and what you received when you disposed of
financial year. Any capital gain must be reflected in If a depreciation schedule is required on an
it”.
your tax return for that year. Another reason that a investment property and the property had previously
Most investors understand that on the sale of an market valuation may be important is to establish been lived in or an Australian non-resident owned the
investment property they may incur a tax liability in each owner’s share if the asset is owned jointly with property prior to the 8 may 2012 legislation changes,
the form of Capital Gains Tax (CGT). This is payable another party. it’s a good idea to ask yourself whether a market
if the investment property was acquired after 19 valuation is also required for CGT purposes.
The Australian Government has made fundamental
September 1985. Gifting a property also triggers a
changes concerning non-residents and their Herron Todd White is ideally placed to undertake
CGT event.
investment properties, including removal of eligibility valuations for CGT purposes, whether for current
When you acquire an investment property or when a for the 50% discount on capital gains earned after market value or a retrospective market value,
principal place of residence becomes an investment 8 May 2012 by non-residents on taxable Australian and also Tax Depreciation Schedules for the same
property, it is important to start keeping detailed property, such as real estate. property, meaning we can provide you with two
records immediately as you may be liable to pay tax reports with only one inspection on your property,
A 50% discount on the amount of capital gains
on it in the future. Your records will help ensure that saving you time and money.
payable has previously been available where
you don’t pay more tax than necessary.
individuals have retained assets for longer than Please feel free to contact us at enquiry@htw.com.
Determining market value of an investment property 12 months. The new changes aims to remove this au.
is essential in calculating CGT. If a property was discount for non-residents which includes Australian
Surveying
Quantity
purchased as an investment property, the purchase citizens living or working overseas who are not
price generally acts as a cost base, however if your residents of Australia. The only way to determine the
property was your principal place of residence, market value of the property is by obtaining a market
determining its market value is not as simple. valuation for the asset as at 8 May 2012.
4Commercial
National Property Clock
Melbourne
October 2015 Tamworth
Office
Toowoomba
South East NSW Peak of
Market
Approaching Starting to
Peak of Market decline
Sydney Mudgee Brisbane
Gold Coast Bendigo Perth
Bathurst Echuca Rising Declining Darwin
Dubbo Ballarat Market Market Mackay
Gladstone
Orange
South West WA
Start of Approaching
Recovery Bottom of Market
Rockhampton Coffs Harbour
Sunshine Coast Horsham Bottom of
NSW Mid North Coast Mildura Market
Leeton Alice Springs
NSW Far North Coast
Entries coloured blue indicate positional change from last month. Adelaide Bundaberg Gippsland
Liability limited by by a scheme approved under Professional Hobart Hervey Bay Wodonga
Standards Legislation. This scheme does not apply within Tasmania. Canberra Albury Burnie/Devonport
This report is not intended to be comprehensive or render advice Cairns Newcastle Launceston
and neither Herron Todd White nor any persons involved in the
preparation of this report, accepts any form of liability for its Townsville Wagga Wagga Riverland
contents.Month in Review
October 2015
New South Wales
Overview increasing available office space in the vacated renewal rates based on unknown disturbances, which
Construction is a sign of strength so this month, buildings. subsequently has seen an increase in incentives
commercial divisions throughout Herron Todd White being offered to the broader office space market.
A key influence on the amount of office space
are compiling a report on where office property is
becoming available is also the demand for residential Record low interest rates and increased investor
being built or refurbished. It’s a great way to see
stock. With the average house price in Sydney demand for attractive returns compared to the over-
where activity is being driven, with the information
topping the $1 million mark recently, demand for heated residential market has seen acceptable net
signposting opportunities for those considering an
office high rise conversion to residential space has returns between the 4% to 6% yield range for typical
investment. Our teams have also given a rundown on
hit full speed. There are 18 major office towers office assets.
how their markets are performing overall, so you’re
flagged for withdrawal from the market over the
sure to be fully informed. Suburban office space has also seen an increase in
next two years, reflecting approximately 325,000
current and proposed development with the majority
Sydney square metres of office space. Of these, twelve
of local councils recently reviewing their local
Currently Sydney is reported by LPC Australia as have been specifically designated for residential or
environmental plans and identifying specific central
having approximately 437,000 square metres of hotel conversion or redevelopment. The remaining
suburban hubs earmarked for higher mixed use.
unlet office space, or approximately 9% of the total six are scheduled for development into new office
As residential affordability is a key area impacting
CBD market. Along with the currently vacant office skyscrapers and will be offline for approximately
Sydney’s landscape, a noted increase in demand for
space, proposed development within the CBD is three years.
suburban office space is apparent, with the general
expected to add 355,000 square metres between
With the mix of the additional office space hitting suburban population seeking office space within
January 2016 and December 2017.
the market and the reduction of space due to close proximity of their primary place of residence.
A major development underway in Sydney is redevelopment or conversion to residential, the Take up of the suburban office space is primarily
Barangaroo, which will see the first two towers outlook for vacancy rates across the Sydney CBD is being driven by the owner occupier sector as well as
completed by the end of the 2015 calendar year expected to be stable in the short term. a big push from the superannuation fund market due
and which will together provide 160,000 square to recent legislation changes.
George Street is about to undergo part of the
metres of this additional office space. Other notable
NSW Government’s $2.1 billion dollar light rail Canberra
Commercial
development underway and due to be completed
construction. With the process expected to run The most significant development recently
within two years are 5 Martin Place, 20 Martin Place,
until 2019, Sydney’s transport system is expected commenced is the new offices being constructed
200 George Street and 333 George Street. While
to be disturbed with the daily movement of the adjoining the Department of Social Securities
much of this additional stock is pre-committed,
peak hour pedestrian and vehicular flow changing (DSS) offices in Tuggeranong. The developer is
we expect to see tenants shifting to Barangaroo,
tenants’ outlooks. Agents have reported hesitation in the Cromwell Property Group and it is understood
7Month in Review
October 2015
that on completion in late 2016 or early 2017 it will This is all positive activity in the market however is developed unless substantial pre-commitment is
be occupied by DSS. This development shows an where there is consolidation there are smaller obtained. It is difficult to obtain pre-leasing levels in
ongoing commitment by DSS to the Tuggeranong pockets of space returned to the market which may the private sector given the market is dominated by
Valley. However it must be assumed that DSS will be difficult to fill. small and medium sized local companies.
vacate offices in other locations within the Territory
The focus of the Commonwealth Government is on
when moving into the new 30,700 square metre
reducing the level of space held under lease that is
In broad terms the Illawarra
building.
not fully or adequately utilised. Indeed there is a commercial property market
Moves in the office sector over the past six months program referred to as Tetra administered by the
include: Department of Finance which addresses this issue.
has shown clear signs of
• an extension of lease by the Department of Illawarra/Southern Highlands
improvement over the past 12
Employment of 10-12 Mort Street which will The last new office building developed in the months with an increase in sales
commence in March 2017. Wollongong CBD occurred in late 2013. This A grade
• Consolidation of Shared Services, an ACT building had pre-commitment from ATO (90% of
volumes demonstrating improved
Government agency, from a number of locations floor area) with ANZ, Red Cross and a local café the confidence after a prolonged
into Garema Court, which has been under utilised remaining tenants.
for a number of years.
period of static conditions.
The opening of the Qantas Credit Union call centre
• The Electoral Commission consolidated into 50 Investment transactions have increased as investors
facility in Braemar in 2014 and the possibility of flow
Marcus Clarke Street in May this year. 50 Marcus are enticed back to the market by yield arbitrage
on effects that this relocation may have in attracting
Clarke Street was leased in one line to the then and a common view that the market has bottomed.
similar office functions to the area is seen as a
Department of Education, Employment and However, most investors are still driven by good
positive for the Southern Highlands. The drivers of
Workplace Relations in May 2013 for 15 years. The quality assets, strong lease covenants and rental
this relocation decision were cheap rent, access to
Department was subsequently split in 2013 into security. There is also increasing appetite for
suitable staff (loyal employees) and NBN servicing.
the Department of Education and Training and high value assets with agents reporting strong
Commercial
the Department of Employment. Part of the space There are no new office developments proposed in competition from both local and out of area buyers
leased became surplus to requirements. The the region at this time with the tender to develop for higher valued assets (circa $5 million plus).
move by the Electoral Commission is an example the SES premises in the Wollongong area reportedly
Low interest rates and increased buyer depth have
of the back filling of leased space by the Federal on hold. The current vacancy of the former ATO
resulted in yield compression despite rents largely
Government. premises in the Wollongong CBD will likely mean
remaining stagnant. Low interest rates and the
that it will be some time before a new office building
8Month in Review
October 2015
buoyant Sydney real estate market are significant and currently under construction by Core Project
drivers in the local market and prices may be Group. The building will mostly accommodate
adversely affected if interest rates increase and superannuation company Auscoal Super, which has
market conditions soften. around 150 employees.
Tenant demand is evident from government, not- The most significant new commercial office
for-profit groups and private organisations and is development in the construction pipeline is known
concentrated on the higher quality A grade space as Edition and is centrally located at 18 Honeysuckle
with reduced interest in lower quality stock. Given the Drive. The office component is part of a mixed use
vacancy rate and the market primarily being driven development on the site that will comprise 7,000
by affordability, we see no upward pressure being square metres of A grade office space with a 4.5
placed on rents. NABERS and 5 green star rating alongside 66
new residential units. The leasing agent, Colliers
Newcastle
International, notes the building will have:
This month we take a look at what new office
development is coming out of the ground around the • Prominent CBD harbour front location;
Newcastle CBD. We’ve spoken previously about the • Positioned within the Newcastle cultural and civic
rejuvenation of the former hospital property that is precinct;
now the Watt Street Commercial Centre and includes • Impressive building identity and street presence;
approximately 7,000 square metres of office space. • Floor plates from 1,284 square metres;
This property has been well received by the leasing • On-site tenant car parking for over 140 car bays;
market and is current close to full occupation. • Premium amenities to all office floors.
Today we’ll have a look at new office development
The A grade office vacancy rates are still at record
currently under construction or in the construction
low levels and these new buildings will help to ease
pipeline. Locals will have noted the striking curved
Commercial
this somewhat.
features of the building known as The Gateway on
the corner of Parry Street and Stewart Avenue at
Newcastle West. Situated on this prominent, high
exposure location stands a six storey commercial
and retail building designed by CKDS Architects
9Month in Review
October 2015
Victoria
Melbourne and 699 Bourke Street have now been completed, be completed in early 2017. Upon completion, the
The Melbourne CBD office market has observed a providing for over 46,000 square metres of A grade consolidated building will provide for over 30,000
fall in the vacancy rate for the first half of 2015 with office space. The police complex aims to achieve a square metres of office accommodation.
the Property Council of Australia reporting in it’s NABERS 4.5 star energy rating while 699 Bourke
Supply appears plentiful in the next few years with
July 2015 office market report a total vacancy of Street is committed to achieving a 5 star NABERS
more than a million square metres of commercial
8.1%, representing an overall decrease of 1% from energy rating. The properties are fully occupied
space in and around the Melbourne CBD in the
the total vacancy of 9.1% observed in January 2015. by Victoria Police and AGL Energy respectively.
pipeline. Notable new developments include
The overall vacancy rate for the Melbourne CBD Another major office development at 567 Collins
the completion of Walker Corporation’s Collins
market is currently lower than the national July 2015 Street, a 26 level complex of approximately 55,000
Square precinct, Mirvac’s 664 Collins Street, and
average of 10.4% and is also notably lower than the square metres, has also been recently completed,
Brookfield’s 405 Bourke Street. Collins Square
overall ‘Australian CBD’ vacancy rate of 10.7%. The with in excess of 80% of the building leased to major
will be Australia’s largest commercial mixed use
PCA reports that 49,459 square metres of newly anchor tenants including Corrs Chambers Westgarth,
development, with five commercial towers to
constructed office space will be supplied to the Jemena, Leighton Contractors, and Regus. In
provide a total of 200,000 square metres of office
market in 2015 with a further 55,000 square metres addition, the refurbishment of Cronwell’s 700 Collins
accommodation upon completion. KPMG (27,000
to be completed in 2016. Street and Charter Hall’s 570 Bourke Street has
square metres) and Maddocks (6,000 square metres)
now been completed, offering an additional 35,000
have pre-committed to Tower Two while Links Group
Leasing incentives currently square metres of A-grade space to the market.
has pre-committed to Tower Four. Tower Five is also
remain high with incentives of In Southbank, 2 Riverside Quay (21,040 square under construction and the development is expected
metres), developed by Mirvac/ISPT, is currently to be completed in late 2016 to 2017.
approximately 25% to 30% being under construction and is scheduled for completion
There is a decreasing trend for office space in the
offered for office space within A in February 2017. The building will have 12 levels of A
St Kilda Road precinct as a number of office towers
grade office accommodation above the refurbished
and B grade buildings and reports eight level car park. PWC has pre-committed to
have been withdrawn for high density residential
conversion. It is estimated that approximately
of up to 40% for buildings with approximately 17,200 square metres of office
Commercial
110,000 square metres of office space from around
space over ten levels, for an initial term of 12 years,
relatively high levels of existing representing around 82% of the total lettable office
16 buildings will be withdrawn over the next five
years. We are witnessing local and overseas
vacancy. area. PWC currently occupies space at Freshwater
developers targeting older commercial buildings
Place which will need to be backfilled. ABC’s new
Construction of two new 12-storey developments at with plans to convert or redevelop for residential
headquarters at 102 Sturt Street is expected to
313 Spencer Street (The City West Police Complex) purposes. An example of this is the 19-storey Fawkner
10Month in Review
October 2015
Centre at 499 St Kilda Road, acquired by Qualitas is presently high demand for investment properties,
for $80 million, which will be transformed into 253 we wish to highlight that there is a possibility that the
apartments with direct access to Fawkner Park. current overheating in the property market will abate
and yields may soften, thus there is potential for
Overseas investor demand for good quality office
values to fall in the short to medium term.
properties within the Melbourne CBD, City Fringe
and Inner Suburban office markets remains buoyant. Echuca
This is primarily due to the lack of suitable stock The office market is well placed with several new
on the market and the sheer weight of local and developments likely in the short term. These include
international capital seeking limited investment redevelopment of the former La Porchetta site,
opportunities in this segment of the market. relocation of Cosgriff Orchard Solicitors to Pakenham
Commercial buildings with residential conversion Street along with a former boutique motel which
potential will continue to be popular for Asian-based is likely to be redeveloped into medical offices on
developers, particularly developers from China, the basis of its proximity to the Echuca Regional
Singapore, and Malaysia. Hospital. We note that the offices formerly occupied
by Cosgriff Orchard are now up for lease and it will
Our overall observations however are that due to
be interesting to see how much demand there is for a
limited opportunities and significant capital inflows,
large standalone building.
a large number of purchasers are discounting basic
property fundamentals to secure prime location From a sales point of view there have been two
assets by paying what can be considered a premium sales of office buildings in excess of $2 million in the
for assets with relatively weak lease profiles and past six months. The most recent was 461-463 High
substantial capital expenditure requirements. Street, Echuca which sold for $3.21 million at a yield
of 6.45% based on the current passing rental.
There is a clear divergence between soft leasing
conditions and strong sales demand with many
Commercial
purchasers showing little regard for basic property
risk fundamentals in the current market. While there
11Month in Review
October 2015
South Australia
Adelaide The next largest project in planning is Precinct As tenants relocate from older premises into more
In the next 12 months the most significant addition GPO at 141 King William Street. The site is located modern buildings, such as those discussed above, it
of new space to Adelaide’s office market will be at the heart of the Adelaide CBD and is proposed may place pressure of landlords on older space to
Cbus Property’s building at 50 Flinders Street. The to comprise two new office towers offering a total attract new tenants.
12 storey tower will comprise a floor area of 21,431 40,000 square metres in office accommodation,
The investment market will continue to be
square metres and is already up to three quarters as well as retail laneways and open piazzas. The
favourable, aided by commercial property tax
committed by Peoples Choice Credit Union. site has unrestricted views over the newly updated
reform and accommodating borrowing conditions.
Victoria Square precinct which hosts major Adelaide
Speculative construction has commenced on 115 King Additionally, demand for prime investments with
events including the Tour Down Under HQ and Royal
William Street by Brinz Holdings. The building will secure tenancy profiles is strong nationally and
Croquet Club.
comprise a relatively small floor-plate of 350 square within Adelaide, given the local economic conditions,
metres but feature 25 storeys and is expected to be Ex-Bendigo Bank headquarters at 169 Pirie Street there is potential for further firming of yields in the
completed by mid-2016. has recently completed major refurbishment of short term.
8,000 square metres with Nine Entertainment
To be constructed at 185 Pirie Street, is an eight
(Channel Nine) partly occupying the property, most
storey office building comprising approximately
significantly with a new studio on the ground floor.
6,000 square metres of accommodation by Palumbo
Group. The building is to be registered for a green Refurbishment of 12,500 square metres at 1 King
star design and as-built rating, targeting a 5 star William Street, formerly occupied by Origin is
green rating. Construction was expected to begin currently underway and due to be finalised by early
in mid-2015, however site works have not yet 2016.
commenced.
Smaller projects currently in progress; 167-175
The pending development of the Festival Plaza / Flinders Street will add 3,095 square metres with a
Riverbank Precinct (directly opposite the Adelaide pre-commitment from Breast Screen SA and 82-98
Oval and fronting the River Torrens) is the most Wakefield Street will contribute 4,000square metres
Commercial
talked about development in Adelaide circles. The including a pre-commitment from Torrens University
precinct will revitalise an under-utilised area of the (1,500 square metres).
CBD and have significant benefits for the northern
fringe, adding an estimated 39,000 square metres of
new office space.
12Month in Review
October 2015
Queensland
South East Queensland overview at 60 Edward Street; Rio Tinto expanding by 2,298
Come and have breakfast with our experts and hear square metres at 414 George Street; BVN relocating
about what has happened over the past 12 months in to 12 Creek Street (1,088 square metres); SEQ Water
your area. Our South East Queensland overview will vacating 240 Margaret Street (1,070 square metres);
also prvide you with both residential and commercial Xstrata Copper closing its business at 123 Eagle
insight for the coming 12 months. Street (1,484 square metres); Bank of Queensland
relocating (2,285 square metres); Robert Bird at 333
Click here to book your seat today.
Ann Street relocating and contracting (2,556 square
Brisbane metres); URS at 240 Queen Street relocating and
The Brisbane office market continues to do it tough contracting (4,064 square metres); Suncorp at 388
with near record vacancies across all markets, soft Queen Street relocating into an existing space (4,422
leasing markets and increasing incentives. square metres); and Queensland Rail at 295 Ann
Street contracting by 4,743 square metres.
CBD Markets
In the CBD there are presently three major new Artist’s impression - 480 Queen Street Fringe Markets
buildings due for completion over the next 12 The total vacancy factor in the fringe markets is
The market is very segmented. There are lower
months: 180 Ann Street (57,465 square metres, running at 12.6% however we are now likely to see
vacancies for prime energy and space efficient
completion imminent); 480 Queen Street (56,855 a hiatus of new major development activity for a
premises while the greatest concern is for older
square metres, completion in the next few months); few years and vacancy rates may reduce. There is
B grade buildings. Demand is very strong for fully
and 1 William Street (75,853 square metres, due for also however a likelihood that fringe tenants will be
refurbished and well let premium grade buildings
completion in late 2016). These projects are expected attracted back to the CBD by the competitive rental
and these are showing tightening yields, however the
to push the vacancy factor up to circa 19% to 20%. environment.
yield spread for anything secondary is very high and
There is also a new development underway at 300
unlikely to tighten further. Spring Hill and Milton continue to experience the
George Street which is expected to add a further
highest vacancies (15.2% and 19.7% respectively)
40,000 square metres of NLA. Face rents are remaining stable but incentives have
Commercial
and appear to be on the outer with both tenants and
climbed and broadly sit at between 35% and 40%.
Of these buildings, 1 William Street and 480 Queen investors. This is driving the withdrawal of some
These are likely to remain high for some time and are
Street are strongly pre-committed, but 180 Ann older accommodation from the market.
also now becoming prevalent for existing tenants.
Street only has one anchor tenant (CBA) secured at
Suburban Markets
the present time. Notable tenancy activity within the Brisbane CBD
Suburban leasing markets are very soft and
includes: RACQ expanding by 3,119 square metres
13Month in Review
October 2015
secondary buildings in particular are remaining Toowoomba Gold Coast
vacant for lengthy periods, however the low interest There have been no new major office building For the Gold Coast, the story is pretty simple – not
rate environment is driving an increased level of developments in Toowoomba to date in 2015, much has happened in this sector for a while and
owner occupier activity and sales activity is solid in with only a small development currently under there is limited planned in the immediate future.
the sub $2 million owner occupier price category. construction on the corner of Herries and Phillip
This is primarily based on the fact that the Gold
New development activity is low and primarily Streets. This building is to be partly owner occupied.
Coast office vacancy level has been up there with the
confined to the stronger suburban commercial
However there is a current requirement from the best of them for a number of years now, although it is
locations such as Eight Mile Plains and Northlakes.
Department of Transport and Main Roads for a pleasing to see that the level is in a downward trend.
2,500 square metre office tenancy within the The vacancy level peaked at 24.1% in January 2011
Yields for suburban commercial Toowoomba CBD or CBD fringe. A tenancy of this and has reduced over the next nine consecutive half
properties are generally in the size is considered very large by Toowoomba office yearly review periods to 14.8% at July 2015.
standards with the requirement most likely fulfilled
7.5% to 10% band while rents by the development of a new building.
However even at this level there is little incentive
for developers to consider producing new office
generally range from $280 per There are a number of larger office buildings buildings. The most recent new office building on the
square metre to $350 per square proposed in Toowoomba that could be developed if Gold Coast was completed in late 2013 at 37 Elkhorn
a major lease commitment (such as the Department Avenue, Surfers Paradise. Take up has been slow.
metre gross. At these parameters, of Transport and Main Roads) was secured. Leasing Asking rates for this medium rise building range from
development feasibility is marginal demand for large floor plates has been low over the $450 to $495 per square metre per annum gross
past three years, resulting in very few new office plus car parking, the higher rate being the top (5th)
at best. buildings being developed. level that also has a deck entertainment area.
Overall, the Brisbane office market continues to
The lack of new office space in the market has given There have been several new, smaller office buildings
struggle and is unlikely to improve in the near to
existing large tenants (over 500 square metres in completed, more particularly in the northern
medium term. While prime CBD assets continue
floor area) very few options for relocation on short residential growth corridor along the M1 Pacific
Commercial
to remain relatively stable, the overall market is
notice. This has enabled landlords to maintain rental Motorway at Helensvale and Oxenford. Occupancy
performing poorly and investors are advised to use
levels over the past five years while markets such as of these two to three level buildings is dominated
extreme caution when considering the purchase
Brisbane have seen declines. by owner occupiers. Surplus floor space is pitched
of office properties with vacancies or poor lease
at around $400 per square metre per annum gross
profiles.
plus car parking. Approval has also been recently
14Month in Review
October 2015
provided for a 3,500 square metre office building in have been undergoing substantial refurbishment swing away from tenants and buyers to be more in
this same location. and modernisation. While the cost is unknown to favour of landlords and sellers.
us, the first building (Stages 1 and 2) floor space
There have been several refurbishments of existing In terms of proposed new office developments for
which is being strata titled into 18 strata suites is
office buildings which suggests that there are the Gold Coast, the PCA 2015 Office Market Reports
being marketed at rates in the order of $3,600 per
opportunities within the market place for astute indicates Base at Robina of 4,000 square metres
square metre. The second building (Stages 2 and
investor or developer entrepreneurs. NLA and Stages 3 and 4 of City Pods at Scottsdale
3) is a future refurbishment. Subject to the depth
Drive, Varsity Lakes of 1,428 square metres. Both
A notable opportunity is demonstrated by the history of demand, the project suggests a healthy level of
these developments are by Robina Land Corporation,
of the office building located at 16 Queensland profitability.
a prolific developer of both residential and
Avenue, Broadbeach. Initially developed in the 1980s,
Zupps Property Group purchased 64 Marine commercial projects within Robina.
the complex was purchased in 2012 for $6 million
Parade, Southport in 2014 for $10.7 million and
under mortgagee circumstances, with reasonably Very recently, three more substantial office buildings
subsequently undertook extensive capital works to
significant refurbishment subsequently undertaken have been advertised for sale on the Gold Coast: 50
both the interior and exterior and services including
at a cost of circa $800,000 to modernise the lift Cavill Avenue (17,000 square metres NLA); Seabank
air conditioning, lifts, etc. Rental levels have been
and internal floor space. This property sold in May (8,500 square metres NLA); and 9 - 15 Bay Street,
pitched at $450 to 475 per square metre per annum
2015 for $11.86 million, reflecting circa $5,500 per Southport (3,400 square metres NLA). These three
gross. However, we understand that interest and take
square metre on lettable floor area and an analysed buildings will attract interest from mid to high worth
up have been moderate only. This is considered to
market yield in the order of 6.8%. This transaction investors and will provide a litmus test of the current
be reflective of a marketplace with a relatively high
represents one of the higher value rate levels strength of the Gold Coast office market.
vacancy level that provides potential tenants with the
achieved in recent times and also indicates a firm
edge to drive the best outcome and landlords who
yield in arguably a Gold Coast market that is in its
have a degree of urgency to fill their buildings and
best state for a long time period.
maintain annual investment returns.
The Westlawn Group purchased Robina East Quay
These examples indicate a somewhat mixed office
Corporate Park at Robina in March 2014 for $6.925
Commercial
sector marketplace, however do show that there
million. The property comprises two buildings
are opportunities to refurbish older buildings for
with combined circa 5,500 square metre enclosed
future profit. However, we consider that marketplace
lettable area plus an additional development site.
conditions within the Gold Coast office sector are
Purely on the building floor area, the buy-in price
probably now only starting to see the pendulum
reflects circa $1,260 per square metre. The buildings
50 Cavill Avenue & Seabank
15Month in Review
October 2015
Sunshine Coast The Sunshine Coast Council is also beginning to Harbour Drive is on a 2.69 hectare site and has three
Office accommodation on the Sunshine Coast has develop the Maroochydore Principal Activity Centre freestanding buildings totalling a reported 6,452
remained relatively stable over the past three years which will take a number of years to build, though will square metre net lettable area as well as 270 car
with limited new development stock on the market. have significant office space planned for the precinct. spaces. The buyer also acquired the 9,127 square
This has been due to the lack of demand for new metre adjoining parcel of vacant land for $1.7 million
All of this indicates that vacancy is likely to increase
stock as a result of the diminishing white collar for future expansion.
in the existing office market in the area unless new
workforce.
tenants can be found to backfill the space likely Gladstone
Over the past 12 months there have been two major to be created in Kawana and by the new Kon Tiki Given the weakened local market conditions for
announcements that will affect the office market: development. office accommodation in Gladstone, there has been
Pratt Property Group beginning construction of its very little activity on the development front. The
Hervey Bay
Kon Tiki development; and Youi announcing that last major office development was in early 2014 and
There has been no new construction of office space
it will build its international headquarters on the was built with pre-commitment from the Queensland
for a number of years however some refurbishment
Sunshine Coast. Government to house multiple departments within
of existing premises has been occurring. Generally,
the single building on Herbert Street. On completion,
The Kon Tiki development will add approximately the commercial office market in Hervey Bay remains
the government departments vacated existing
16,000 square metres over two buildings, which unchanged with little indication of any improvement
premises which are mostly still vacant.
is approximately the amount of vacant space in the short term. Continued high levels of supply
currently in the office market. This building will be in and anxious vendors have resulted in a general There has been no notable major refurbishment of
Maroochydore and will likely drag tenants from older softening in leasing rates for older properties or office space within the past 12 months. Generally, the
buildings within the CBD, increasing vacancy in that spaces lacking exposure. Current asking rates are office market is slow as a result of reduced workforce
location. as low as $160 per square metre net for secondary numbers associated with local LNG projects. This has
space while primary space is still asking in excess of resulted in an oversupply of office accommodation
Youi currently leases approximately 5,000 square
$300 per square metre net. in Gladstone and rental levels have begun to fall to
metres in Kawana and is reportedly looking to build
meet demands from local tenants. Weak demand for
an over 10,000 square metres complex for its own Buyers continue to lack urgency to make decisions
Commercial
office accommodation is likely to prevent any major
use near the University of the Sunshine Coast. This and very few properties have sold over the past six
new office developments in the immediate term with
will leave a significant vacancy within the Kawana months. The most notable sale for Hervey Bay was
poor ability to gain pre-commitment.
business area. This area does have the advantage of that of Bay Central on Boat Harbour Drive which
the nearby Sunshine Coast Hospital which should act sold in May 2015 for $17.5 million to a Melbourne
as a buffer for the area. private investor. The shopping centre at 135 Boat
16Month in Review
October 2015
Mackay departments mentioned above, this requirement for major refurbishment of Stirling Place on Bolsover
The Mackay commercial office market is presently market leading rents has generally kept development Street. The NAB building was completed in 2012
subdued and the city has seen no recent of large scale office premises to a minimum over and provided an additional 2,284 square metres
development of new commercial office space of note. the past ten years. Due to the slowdown in the local of modern office accommodation over two levels.
The completion of a multi storey commercial office economy and further downward pressure on rental Stirling Place (152-156 Bolsover Street) underwent
development for Queensland Government in August rates, the ability to achieve market leading rents extensive refurbishment in 2012 and added an
2013 and a new premises completed in December and thus a viable development is now even more additional 2,665 square metres of lettable area over
2013 which is partially occupied by Centrelink are the unlikely in today’s market. Therefore new greenfield six levels to the office market. All but one level of
most recent developments of large scale offices in development of commercial office in Mackay’s Stirling Place has since been leased.
the area. market would be highly risky and unappealing to
There are no major office complexes in the pipeline
developers.
The resultant commercial office area left by the that we are aware of, however we do note the
various Queensland Government departments and The increased supply and decrease in demand has redevelopment of the former Post Office Hotel
Centrelink vacating their existing tenancies has resulted in landlords becoming more competitive building on Musgrave Street in Berserker which
resulted in a significant volume of supply being in order to attract new tenants. The prevalence is reported to incorporate 1,331 square metres of
added to the market since the end of 2013. In of incentives is increasing, including fitout and modern accommodation suitable for use as either
conjunction with the slowdown in the coal industry, refurbishment incentives to entice tenants. retail or offices. Construction on this development is
this has brought about an oversupply situation Refurbishment of existing premises is likely to be well underway. Within this precinct on the north side
which is now resulting in a downward correction to the only creation of new, higher quality office space of Rockhampton, there is also a new office building
rental rates. The extent of this correction is difficult in today’s market and will primarily be driven by being constructed on the corner of Musgrave Street
to quantify and the market is still relatively volatile landlords being forced to spend capital or be left with and Burnett Street which will provide approximately
with inconsistencies between rent for what would largely vacant buildings and poor income security. 896 square metres of lettable area. This new office
ordinarily be considered comparable tenancies. This building is to be owner occupied
Rockhampton
oversupply and low demand is likely to remain a
New development in the office sector in Townsville
feature of the Mackay commercial office market for
Commercial
Rockhampton has been relatively quiet over the past Currently there are no new commercial office
at least the near future.
few years. developments under construction however there are
Historically, new commercial office development in a number of proposed office buildings in the pipeline.
The last major additions of modern office space
the Mackay market has required market leading rents
to the CBD have been the NAB building on the Construction of a number of new CBD and suburban
to create a viable development. With the exception
corner of Fitzroy Street and East Street and the office buildings has been completed over the past
of the developments tenanted by government
17Month in Review
October 2015
two years. The larger of these developments include limited new development. The last large office Most new office space leasing demand is for smaller
Verde, 420 Flinders and NQN House in the CBD, building constructed in Cairns was the Queensland areas and for modern, good quality green star rated
along with the Queensland Country office building in Government office tower completed in 2010 and premises, however there is only a handful of such
Aitkenvale. there are no known new developments in the buildings in Cairns. These buildings achieve high
pipeline. levels of occupancy and are experiencing stable
The CBD office rental market continues to experience
rent levels typically of $350 to $400 per square
weakness in demand, with rental rates suffering Our chart shows the number of general commercial
metre per annum. Demand for lesser quality space
downward pressure triggering increases in leasing property sales in Cairns, inclusive of retail and
remains limited and there is a large oversupply even
incentives in order to attract tenants. Our latest CBD commercial office premises. It highlights that activity
of good quality non-inner CBD and well exposed
Office Vacancy Survey indicates a vacancy rate of in the Cairns commercial market remains well below
secondary space. These conditions have placed
25.2% overall with an A grade vacancy of around the levels achieved in the 2004 to 2005 and 2007
downward pressure on secondary rents and have
11.1%. to 2008 periods, with the rate of sales over the past
seen the emergence of incentives. There has also
seven years building slightly but still only averaging
Due to the low levels of demand, some office been considerable churn in the market in recent
around 85 sales per annum. Prices paid for strata
buildings are lending themselves to conversion for months, with a number of larger tenancies relocating
titled premises have been relatively stable over the
alternate uses. Over recent years we have seen an to higher quality or purpose built premises.
past seven years at around $2,500 to $3,000 per
800 square metre stand alone CBD office building
square metre of floor area. There has been little change in the Cairns office
undergo conversion to a child care centre and the
market during 2014 and 2015 and we see no reason
3,800 square metre former Department of Transport Commercial Property Sales in Cairns
for change in the near future.
and Main Roads building is currently being converted
to a mental health facility.
There have been a few renovations including the City
Arcade three level office building redevelopment
which is now fully occupied by James Cook University
and some smaller scale refurbishments of buildings
Commercial
purchased for owner occupation.
Cairns
The Cairns office market is relatively shallow with
most properties being tightly held and experiencing
limited sales activity. The market also experiences
18Month in Review
October 2015
Northern Territory
Darwin The only other office development of note is
When it comes to new office developments in the Darwin Corporate Park at Berrimah. This project is
Darwin CBD, there really is only one project to talk attractive to tenants who prefer to be closer to the
about - the new Charles Darwin Centre. demographic centre of Darwin rather than the CBD
with its attendant parking issues. Key tenants to
The development is being carried out by the
have relocated include Westpac Business Banking. It
Paspaley family on their site at the corner of Bennett
is expected that this project will also continue to go
Street and the Smith Street Mall. The site originally
from strength to strength.
accommodated the Commercial Bank of Australia
and its original colonnade has been retained in
the redevelopment. This is especially important in
Darwin which after three severe cyclones and 64
Japanese bombing raids has few heritage buildings.
The 20 storey building was designed by
internationally acclaimed architects Pei Cobb Freed
and Partners and constructed by local builder
Sunbuild. It has floor plates of about 1,000 square
metres wrapped around a central services core and a
5 star NABERS rating.
The Charles Darwin Centre loses nothing in
comparison with landmark buildings in other
Australian capital cities. Its imminent completion
will have a dramatic affect on the CBD office market Charles Darwin Centre
and with the NT Government already vacating other
Commercial
space in town, it is expected to dominate the market
for some time.
19Month in Review
October 2015
Western Australia
Perth Currently, more than 190,000 square metres of new Other mooted developments include the old Perth
Almost 17.5% of Perth’s office space is sitting empty office space is under construction in Perth’s CBD, fire station and Perth Chest Clinic site, known as
and that figure is set to increase with seven new with approximately 135,000 square metres over FESA, and Milligan Square. In addition to the new
buildings coming on line later this year. seven buildings due for completion by the end of Westin Hotel, the FESA site will house a mixed use
2015. Projects due for completion this year include and retail development, adding approximately
The Perth CBD office market currently contains
Kings Square 3 (6,420 square metres), Kings Square 34,500 square metres if it proceeds. Fragrance
approximately 1,630,502 million square metres of
4 (12,420 square metres), Brookfield Place Tower Group has a site known as Milligan Square, located
lettable space. Of this, over 58% or 936,564 square
2 (32,000 square metres), Kings Square 1 (23,400 on the corner of Milligan and Murray Streets, which
metres is of prime quality (premium and A grade)
square metres) and the Treasury Building (30,800 received development approval for a mixed use
and the balance, 42% or 696,940 square metres, is
square metres). development project. More than half of the CBD’s
secondary (B, C and D grade) quality.
office space was of prime grade quality last year.
Almost 60% of this new supply is already pre-
Since the start of 2014 through committed to a number of tenants which include Planned for delivery in 2021, the project includes
Shell and Wesfarmers. an office tower with approximately 10,000 square
to the first half of 2015, almost metres west to the redevelopment of the existing
In the short to medium term, the development
40,000 square metres in new outlook remains subdued as the market transitions
hotel. However, it is unlikely to get off the ground
until lease pre-commitments have been secured.
supply has been added to the through the current cycle and available existing
supply, as well as upcoming backfill, begins to be Perth may see several smaller developments over
market, making 2015, with absorbed. Beyond 2015, only one project is firmed the next five to eight years, but a new development
approximately 190,000 square for delivery with construction already underway for cycle is unlikely to get underway before 2020 when
Capital Square (55,000 square metres). Expected to we may see the likes of Chevron’s new headquarters
metres underway, a significant be completed in 2018, Capital Square will become the at Elizabeth Quay.
year in terms of new construction. new headquarters for Woodside Petroleum. There
South West WA
are a number of mooted office developments, the
Most recently, the refurbishment project of 32 St As usual, a general wrap of current market
Commercial
most significant being those in Elizabeth Quay, City
Georges Terrace was completed, extending the performance is always useful.
Link and the Waterbank precincts. Chevron Australia
existing building from 8,800 square metres to almost
had previously purchased a parcel of land in Elizabeth The office market in the south west is very quiet.
15,000 square metres of net lettable area. Prior to
Quay for the construction of its new headquarters There is currently very little office development
that, in August 2014, Cloisters at 863 Hay Street was
but a decision for the project to go ahead is not likely activity in any of the major towns. Rental demand
completed, adding 10,947 square metres.
to be made until 2016. is weak and rents are declining leading to very low
speculative activity.
20Month in Review
October 2015
A major project planned in the Bunbury CBD is
struggling to find potential tenants and is unlikely to
take off as a consequence.
Government tenants are looking to reduce the space
they currently occupy and there is very little rental
demand coming from the private sector with the
business confidence as low as it currently is.
The recent changes in leadership at the top levels i.e.
Federal Government and the test cricket team could
provide increased business confidence however this
will take a long time to develop into any change in the
south west office market.
Commercial
21Residential
National Property Clock Sydney Newcastle
October 2015 Melbourne South East NSW
Dubbo
Houses
Toowoomba
Tamworth
Peak of
Market
Approaching Starting to
Peak of Market decline
Cairns Griffith
Bundaberg Mudgee
Sunshine Coast Wagga Wagga Emerald
Brisbane Coffs Harbour Rising Declining Perth
Gold Coast Bendigo Market Market Darwin
Ipswich Echuca Alice Springs
Adelaide Horsham South West WA
Canberra Mildura
Albury Ballrat
NSW Mid North Coast Start of Approaching
Recovery Bottom of Market
Bottom of
Hervey Bay Gippsland
Market
Hobart Latrobe valley
Bathurst Burnie/Devonport
Orange Launceston
Entries coloured blue indicate positional change from last month. Townsville NSW Far North Coast
Liability limited by by a scheme approved under Professional Whitsundays Shepparton
Standards Legislation. This scheme does not apply within Tasmania. Mackay Mount Gambier
This report is not intended to be comprehensive or render advice Rockhampton Riverland
and neither Herron Todd White nor any persons involved in the
preparation of this report, accepts any form of liability for its Gladstone
contents.National Property Clock Brisbane Newcastle
October 2015 Sydney Orange
Whitsundays South East NSW
Units Dubbo
Toowoomba
Melbourne
Peak of
Market
Approaching Starting to
Peak of Market decline
Adelaide Bendigo
Albury Echuca
Perth
NSW Mid North Coast Horsham
Rising Declining Darwin
Griffith Ballarat
Market Market Emerald
Mudgee
Gladstone
Tamworth Alice Springs
Wagga Wagga
South West WA
Coffs Harbour
Start of Approaching
Recovery Bottom of Market
Cairns Hobart
Bundaberg Launceston Bottom of
Hervey Bay Burnie/Devonport Market
Sunshine Coast Bathurst
Gold Coast Gippsland
Ipswich Latrobe Valley
Entries coloured blue indicate positional change from last month. Townsville NSW Far North Coast
Liability limited by by a scheme approved under Professional Mackay Mount Gambier
Standards Legislation. This scheme does not apply within Tasmania.
Rockhampton Riverland
This report is not intended to be comprehensive or render advice
and neither Herron Todd White nor any persons involved in the Canberra
preparation of this report, accepts any form of liability for its
contents.Month in Review
October 2015
Overview $350,000 to $550,000 (Penrith) traditionally offer original or renovated
Markets are a complex beast made up of many facets Generally only vacant land in newly released large homes built in the 1970s to 1980s, typically on 600
– and not all sectors rocket along at the same pace. estates within designated growth zones of the south square metre parcels with established local services
It’s important to not only know how real estate is west and north west corridors is available in this including schools and links to public transport.
performing overall in a region, but to understand price range. Estates such as Oran Park, Spring Farm,
As an example a recent sale in Churchill Drive,
what particular part of that market is performing Jordans Springs and Marsden Park would provide
Winston Hills shows the appeal of this suburb which
best. an opportunity for those looking to build their first
is about four kilometres from the Parramatta
dream home.
This month the residential team at Herron Todd CBD on the M2 motorway. A typical single level
White have given a great overview of which sectors Given the extent of infrastructure including light 3-bedroom, 1-bathroom red brick 1970s dwelling on
are the hottest around Australia. rail networks, the upgrading of local roads for a 700 square metre parcel, the property includes
connection to the motorways and the newly an updated timber kitchen. A local agent reports
Sydney
designated employment zones within both these it sold in August 2015 for $921,000 with minimal
As the majority of the country is aware, the Sydney
growth zones, the opportunities for a solid changes from the previous sale in September 2013
market has been going from strength to strength
investment are there for the foreseeable future. for $710,000.
in the past few years and each price point seems to
have opportunities. The median price for a dwelling If a purchaser is looking for a unit in this value range Units in this price point can be found throughout
in Sydney is $772,200 which is a growth in value of opportunities exist within 15 to 20 kilometres of the the city and the style, condition and location will
16.2% over the previous financial year according to CBD in suburbs such as Punchbowl and Lakemba for be factors in the final price. Properties close to
CoreLogic RP Data in June 2015. The driving force a 1-bedroom unit and further out in the suburbs of shopping centres, universities and transport links
for the majority of the Sydney market is supply say Liverpool or Campbelltown for a 2-bedroom unit. are highly appealing to both owner occupiers and
and demand. With the traditionally strong spring Generally some capital appreciation can be achieved tenants.
season approaching, the auction clearance rates in the short term as properties are typically 1970s,
Some investors have been able to make
appear to be slowing but there are significantly more three storey walk up unit buildings that are in original
significant gains by purchasing off plan and
properties being put to auction each week. order.
settling in a stronger market. Recently completed
Residential
To get a better gauge on opportunities in Sydney, we $550,000 to $1 million developments in Camperdown, Homebush, Castle
have looked at various value thresholds within the A popular price point that is seen to be affordable, Hill and Westmead have shown significant capital
metropolitan area up to $2 million. These are the suburbs such as Acacia Gardens and Kings appreciation between the exchange and the
market levels that have the most activity and appeal Langley (Blacktown), Winston Hills and Greystanes settlement dates.
to the majority of purchasers. (Parramatta) and Werrington and Cranebrook
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