Transcript of "Sydney cbd office research forecast report second half 2012"
second half 2012 | OFFICEResearch & Forecast ReportSydney CBD Office Absorption Drives Decline in Vacancy The Sydney CBD office market saw the largest decline in vacancy across all Australian CBD markets during the first half of 2012. The latest Property Council of Australia Office Market Report, showed that Sydney’s CBD vacancy rate declined by 1.5 percentage points (pp) from 9.7% in January 2012 to 8.2% in July 2012. This decline can be attributed to a distinct lack of supply with only 13,225m² entering the market, combined with a positive absorption result, of 45,309m² during the period. The biggest news for the Sydney CBD office market during the period was the announcement that Westpac, KPMG and Lend Lease had pre-committed to tenancies in the first two towers at Barangaroo. The deal represents approximately 120,000m² or 70% of office space within the two towers. In a separate announcement and one that gave further commitment and confidence that construction of the project will move forward on schedule is that Canada Pension Plan Investment Board (CPPIB) has formed a joint venture with Lend Lease to finance the project. This will see the85 Castlereagh Street, SydneyThis newly built Premium Grade building has joint venture commit $2 billion of the equity for the project with CPPIB committing 50% or $1benefited from new commitments over the past six billion and Lend Lease and APPFC each committing 25% to the joint venture.months. The past six months has seen investment demand remain strong with both offshore and domestic investors continuing to focus on quality Prime Grade assets. However, the limited number of theseMarket Indicators Forecast - 6 months assets for sale has seen the majority of deals transact off-market or to related parties. This has Overall Performance seen yields for Prime Grade assets remain stable while the yield spread between high and low quality Secondary Grade assets has continued to widen. New Supply The CBD leasing market has seen an increase in new leases signed by former fringe and metro Tenant Demand based tenants. However, despite the decline in vacancy, subdued tenant enquiry levels and softer lease volumes has seen face rents remain relatively stable over the period, while incentives have Vacancy / begun to show signs of softening. Incentives Sydney CBD Office Market Indicators Face Rents Average Gross Average Average Average Capital Average Grade Precinct Face Rents Outgoings Effective Rents Incentives Values ($/m²) Market Yield* ($/m² pa) ($/m² pa) Capital Values Low High Low High Low High Low High Core $800 $1,295 21% 25% $180 $9,760 $17,445 6.25% 6.55% Yields Premium Midtown $765 $1,015 24% 28% $140 $9,495 $13,270 6.55% 6.65%Key Highlights Western Corridor $675 $845 23% 27% $115 $8,455 $10,970 6.50% 6.75% Core $655 $820 23% 28% $150 $7,305 $9,720 6.75% 7.00%• he vacancy rate within the Sydney CBD T Midtown $595 $725 25% 28% $130 $6,365 $8,110 7.15% 7.50% office market declined from 9.7% to 8.2%. A Grade Western Corridor $620 $745 25% 29% $125 $6,915 $8,670 7.00% 7.35%• he decline in vacancy was driven by a T Southern $510 $565 21% 26% $115 $4,965 $5,675 7.85% 8.15% strong rise in absorption with 45,309m² Core $570 $660 26% 29% $120 $5,855 $7,040 7.55% 7.95% recorded for the first half of the year. Midtown $525 $615 25% 29% $115 $4,980 $6,035 8.00% 8.60%• rime Grade yields have stabilised while the P B Grade yield spread between high and low quality Western Corridor $545 $620 26% 30% $120 $5,330 $6,265 7.75% 8.25% Secondary Grade assets has continued to Southern $430 $480 28% 30% $100 $3,840 $4,415 8.30% 9.05% widen. *Equivalent Reversionary Yield Data correct as at Q2 2012 Source: Colliers International Researchwww.colliers.com.au/research
research forecast report | second half 2012 | OFFICE | SYDNEY CBD Economic UpdateInterest rates remain Strong Q1 2012 GDP Resultsteady at 4.25%. The March Quarter 2012 Australian Bureau of Statistics (ABS) Gross Domestic Product (GDP) data showed robust growth for the Australian economy during the quarter. In seasonally adjusted terms, GDP increased 1.3% during Q1 2012, up from 0.6% in Q4 2011, taking through-the-year GDP growth to a strong 4.3%, the largest annual result since September 2007. The main contributors to expenditure on GDP, during the quarter, were household final consumption (0.9 percentage points) and private gross fixed capital formation (0.8 percentage points) while net exports detracted 0.5 percentage points. The main industry contributors to GDP were mining (up 2.3%), financial and insurance services (up 1.7%) and professional, scientific and technical services (up 2.8%). Employment Remains Tight Despite seeing a slight rise in unemployment, the June 2012 monthly ABS Labour Force data shows that the Australian employment market continues to remain tight. The national unemployment rate experienced a slight increase of 0.1 percentage point during the month to 5.2% seasonally adjusted with total employment decreasing by 27,000. This decline was driven by a decrease in full-time employment of 33,500 persons and a slight increase in part-time employment of 6,600 persons. Inflation Rate Remains Low The latest inflation data from the ABS shows that annual headline inflation rose just 1.2% during the 12 months to June 2012, down compared with a rise of 1.6% through the year to March 2012. This saw the Consumer Price Index (CPI) grow by 0.5% during the quarter and ensures that the inflation rate remains well below the RBA’s target range of 2% to 3%. Underlying inflation was also contained increasing by 0.6% during Q2 2012, taking annual growth to 1.9%. Cash Rate Remains Stable Following a reduction of 50 and 25 basis points in May and June 2012 respectively, the Reserve Bank of Australia (RBA) decided to keep the official cash rate stable at 3.50%, during both their July and August monthly board meetings. The RBA judged that “with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate”. Australian Dollar Fluctuates Ongoing uncertainty over European sovereign debt issues has continued to fuel concerns regarding the global economic outlook. Combined with the slow pace of economic recovery in the United States, this uncertainty saw the Australian Dollar reach a record high in late July 2011, trading at $US110.62, before slipping below parity in December 2011. After regaining value during Q1 2012, the Australian dollar again fell below parity in May 2012 due to a flight by investors to safe haven assets, as election results in Greece and France further clouded the outlook for the European economy. A rebound in recent months has led to the Australian dollar currently trade between $US1.02 and $US1.06. Sydney CBD White Collar Employment Growth v Net Absorption forecast 150,000 5.0% Forecast 4.0% White Collar Employment Growth (6 mth % change) 100,000 3.0% Net Absorption - (Sq m) 50,000 2.0% 1.0% 0 0.0% -50,000 -1.0% -2.0% -100,000 -3.0% -150,000 -4.0% Jan-09 Jan-12 Jan-13 Jul-08 Jul-11 Jul-09 Jul-12 Jul-15 Jan-10 Jan-02 Jan-04 Jul-13 Jan-06 Jan-08 Jan-05 Jan-11 Jan-14 Jan-03 Jan-15 Jul-01 Jul-10 Jul-02 Jul-04 Jan-07 Jul-03 Jul-06 Jul-05 Jul-14 Jul-07 6 Mth Net Absorption Sydney CBD White Collar Employment Growth Source: Deloitte Access Economics / PCA / Colliers International Research Colliers International | p. 2
research forecast report | second half 2012 | OFFICE | SYDNEY CBDEmployment Trends and Leasing DemandWhite Collar Employment Sydney CBD White Collar Employment Growth First Sydney CBD White Collar Employment Growth - By Industry First Half 2012 Half 2012 - By IndustryGrowth Remains Positive Total White Collar Employment Growth• Thelatest employment data from Deloitte Information Media and Telecommunications Professional, Scientific and Technical Services Access Economics shows that white collar Financial and Insurance Services employment growth slowed during the first Construction Administrative and Support Services half of 2012. Health Care and Social Assistance• Total white collar employment within the Sydney Arts and Recreation Services Industry Sector Agriculture and mining CBD increased by 0.51% during the period, Manufacturing down from 1.4% in the second half of 2011. Rental, Hiring and Real Estate Services Wholesale Trade• Theinformation, media and Education and Training Other Services telecommunications sector recorded the Transport, Postal and Warehousing largest growth increasing by 8.1%, followed Electricity, Gas, Water and Waste Services Retail Trade by Construction with 4.7% growth. Accommodation and Food Services• Thefinance and insurance sector which makes Public Administration and Safety -600 -400 -200 0 200 400 600 800 1,000 1,200 up approximately 25% of tenants by area within Number of Persons the CBD saw white collar employment grow by Source: Deloitte Access Economics / Colliers International Research just 0.4% during the period.• Looking forward Deloitte Access Economics forecasts white collar employment growth to sydney cbd lease transactions remain subdued growing by 0.3% in the 200 180,000 second half of 2012. 180 160,000Lease Volumes Remain Subdued 160 140,000• Ongoinglow business confidence levels saw 140 the number of leases signed by tenants 120,000 Number of Leases Signed during the first half of the year decline by Office Area (m²) 120 100,000 16%, as compared to the second half of 2011. 100 This was despite the overall size of office 80,000 80 area leased remaining stable. (Excluding the 60,000 Barangaroo pre-commitments). 60• The majority of leases signed during the 40 40,000 period were to smaller, sub 1,000m², 20 20,000 domestically focused tenants with the average size of leases signed being 675m², up 0 1H 2008 2H 2008 1H 2009 2H 2009 1H 2010 2H 2010 1H 2011 2H 2011 1H 2012 0 from 550m² during the second half of 2011. Number of Leases Signed Office Area Leased (m²)• The first half of 2012 saw approximately 105 Source: Colliers International Research leases signed making up a total area of 70,000m² across all Sydney CBD grades and precincts. sydney cbd office tenant enquiry levelTenant Enquiry Softens• The total number of new tenant enquiries in 300 300,000 the Sydney CBD office market declined by around 11% over the first half of 2012, 250 250,000 compared with the second half of 2011. Number of Enquires• Ongoing low levels of business confidence 200 200,000 Office Area (m²) and company profit results has led to an increase in tenants looking to take up their 150 150,000 option, renew their lease and stay put, rather than commit to the cost of moving tenancies. 100 100,000• Thetotal number of new enquires still remained over 140 for the six month period, 50 50,000 however the total area of new enquiry declined to around 90,000m² for the period. 0 1H 2009 2H 2009 1H 2010 2H 2010 1H 2011 2H 2011 1H 2012 0• This saw the average size of enquiry decline Number of Enquires Total Size of Enquires (m²) from 1,025m² in the second half of 2011 to 615m² over the course of the first half of the year. Source: Colliers International Research Colliers International | p. 3
research forecast report | second half 2012 | OFFICE | SYDNEY CBD SupplyNo new No New Developments in 2012 course of 2013 with two new developments due for completion.developments due • Afterexperiencing close to 200,000m² of supply additions during 2011, the 2012 calendar • The largest being 161 Castlereagh Street whichfor completion in year is expected to see only 60,000m² added is set to bring 54,437m² of Premium Grade to the markets, 45% is currently committed. space to market in the first half of the year of2012. • The which 80% is pre-committed by Freehills and first half of 2012 saw 13,225m² enter the ANZ Bank. market which was offset by 42,237m² of withdrawals. Leading to a negative net supply • The second is 8 Chifley Square. This 19,000m² result of -29,012m², during the six month period. office building is being developed by Mirvac and • The is currently 42% committed to by Corrs. largest addition during the period was 52 Martin Place which added 7,500m² of newly • 2014looks set to be a year in which the Sydney refurbished space into the market. CBD will again experience a lack of supply with • The the only new development due for completion second half of 2012 is forecast to see a being 5 Martin Place, subject to pre commitment. slight increase in supply additions with close to 47,000m² of refurbished space due for Barangaroo Announcement Brings completion during the period. Certainty to Supply Pipeline • Thelargest being 1 O’Connell Street which has • The Barangaroo pre-commitment undergone a major refurbishment and is announcement provides clarity to the expected to add 19,000m² of space. development and supply pipeline over the next • On top of this Colliers International has five years. identified approximately 15,000m² of backfill • The relocation of Westpac to C4 is set to space will enter the market, due to the increase the amount of backfill space entering relocation of a number of tenants and a further the market with Westpac likely to vacate 17,000m² is expected to be withdrawn over the approximately 89,000m². The majority of which second half of 2012, as landlords continue to is set to be withdrawn for redevelopment or refurbish stock. refurbishment. Two New Developments For 2013 • C5which is committed to by KPMG and Lend • A Lease will lead to 43,000m² of backfill space total of 130,000m² of supply additions are across two buildings, being 10 Shelly Street and expected to be added to the market over the 30 Hickson Road. Sydney CBD Current Mooted Commerical Development 110,000 2012 2013 2014 2015 2016 2017+ 100,000 90,000 80,000 70,000 Total Office NLA (m2) 60,000 50,000 40,000 30,000 20,000 10,000 0 n s e) Geo St ge St St St St abe q St t eet Ma St ren St Cla o C4 i tt St 175 ereag t hur t L St 0 G St 5 t St 338 tin Pl 339 h St 3 oo C3 aro l 2 P St Blig t t abe t 255 hifley t St Pl t You eorg l 478 homa l Geo Pl rtin 1 OC ge St t eor d 19 rer Pl P st S 7 G ti n P th S P tS hS rS S 8 C ark S S 255 pool S hS oftu 55 Ribbo S oC R 259 ranch 5P eor 309 Kent Bar eorge Bar Martin ce rtin Pitt rge She 1 Pitt rtin ce tt el l 383 artin e s rge rge rge Pitt ge Str rke -20 ckson n te t 151 51 Pi aro onn ren r ar 3 -3 r ar ar Ma Ma Geo Geo Geo Ma lley Hu er Th e 289 60 M 5M T 3 464 ang ang Geo arang Bat 1F Eliz Eliz G Cla 0G 35 ng 19- -4 8 37- Liv Hi T 2nd 52 tl 1 20 55 333 363 Cas 33- 180 -30 115 30 155 99 rge Pl ( B 10 161 190 Ma 182 52 Complete New Build/Vacant Refurbishment/Backfill Mooted Commitment Note: Includes additions above 5,000m² Source: Colliers International Research Colliers International | p. 4
research forecast report | second half 2012 | I | Y Y BNew Supply Pipeline Recent y o p eted and ojects unde onst uction urrent ffice ddress recinct tatus ompletion wner roject ype Major enant ccupancy/ L (m²) ommitment Abacus Property 309 George Street Core 5,200 U/C Q3 2012 Partial Refurb - - Group 363 George Street Core 10,500 U/C Q4 2013 SPT Partial Refurb TAL 100% Harina Company/ 1 OConnell Street Core 19,000 U/C Q4 2012 Australian Prime Partial Refurb Middleton’s 40% Property und LaSalle nvestment Mgt/ GPT Wholesale 161 Castlereagh Street Midtown 54,437 U/C Q2 2013 ew evelopment A Z reehills 80% Office und / SPT Super Property 8 Chifley Square Core 19,000 U/C Q4 2013 Mirvac / K-R T ew evelopment Corrs 42% A Barangaroo C4 Western Corridor 7,500 Q3 2015 Lend Lease ew evelopment Westpac 70% Approved A Lend Lease, Barangaroo C5 Western Corridor 78,000 Q1 2016 Lend Lease ew evelopment 70% Approved KPMGSource: Colliers nternational Research Mooted o e cia e e op ents roposed Mooted ddress recinct tatus wner/ eveloper omments L (m²) ompletion 5 Martin Place Core 30,000 A Approved 2014 Colonial irst State / Cbus ew development ew development, owner has committed 180 Thomas Street Southern 15,000 A Approved Q3 2014 Transgrid to 37% esign competition for new office building 190-200 George Street Core 38,000 A Lodged Q3 2015 Mirvac Group now on exhibition. 383 George Street Core 13,400 A Approved Q2 2015 ife Capital Construction of mixed use development Major redevelopment of existing office 20 Martin Place Core 20,673 A Lodged Q4 2015 Pembroke Real state building. ew innovative designed 18 storey office The Ribbon Western Corridor 38,000 Pre A 2015+ Markham/ Grocon building with large 3,000+ floorplates. ( MAX Theatre site) Major redevelopment of exisitng heritage 155 Clarence Street Western Corridor 11,500 Pre A 2015+ St Hillers office building. 333 George Street Core 13,318 A Approved 2016 Charter Hall ew office and retail development Barangaroo C3 Western Corridor 100,000 A Lodged 2016 Lend Lease ew commercial office development A lodged for a mixed use retail, commercial 33-35 Bligh Street Core 23,536 A Approved 2016+ nvesta residential building with a maximum height of 235 metres. ity ne Construction of 32 storey building with Core 60,000 Stage 1 Approved 2017+ Thakral Holdings 301 George Street 2,100m² floorplates. 37-51 Pitt Street Core 80,000 Pre A 2017+ G Capital Real state - 182 George Street Core 80,000 Pre A 2017+ Lend Lease - 33-35 Pitt Street Young oftus AMP Capital nvestors / 2-10, 20 Loftus Core 37,698 Pre A 2017+ - Grocon 5-17 oung StreetsSource: Colliers nternational Research o ie s nte nationa | p. 5
research forecast report | second half 2012 | OFFICE | SYDNEY CBD VacancyA grade vacancy Sydney CBD – Stock Vacancy by Precinct Grade PRECINCT/ WESTERNdeclines by 1% TOTAL MARKET CORE MIDTOWN SOUTHERN GRADE CORRIDORto 8.9%. Stock Vacancy Stock Vacancy Stock Vacancy Stock Vacancy Stock Vacancy (m²) (%) (m²) (%) (m²) (%) (m²) (%) (m²) (%) Total - 4,902,737 8.2% 2,091,343 9.1% 1,154,495 9.8% 1,215,671 6.0% 339,825 6.9% All Grades Premium 720,427 7.8% 408,261 11.3% 135,045 6.0% 177,121 0.9% n/a n/a A Grade 1,778,485 7.5% 685,865 9.8% 439,927 9.1% 478,608 4.5% 126,783 3.7% B Grade 1,587,287 7.8% 694,739 7.1% 384,184 6.8% 336,599 10.9% 130,374 6.8% C Grade 615,189 12.2% 243,965 10.6% 118,824 26.3% 192,791 5.2% 46,021 13.1% Source: PCA OMR July 2012 / Colliers International Research The Sydney CBD vacancy rate • TheWestern Corridor remained the precinct declined from 9.7% in January with the lowest vacancy rate, despite increasing 2012 to 8.2% as of July 2012. 0.4pp to 6.0%. • The Southern precinct was the outperformer • The driver behind the decline was the during the first half of the year, recording the combination of a lack of supply additions, largest decline in vacancy across all precincts, increased withdrawal activity and a return of declining by 3.0pp to 6.9%, led by a strong strong positive net absorption. 3.9pp decline in A Grade vacancy in the area. • Absorption was above the long term average, An increase in positive absorption was the recording 45,309m², after experiencing just driver behind this result with a number of 10,709m² of net absorption over the course of metro and fringe based tenants moving into the the 2011 calendar year. precinct during the period. • Overall, direct vacancy in the CBD declined by • TheCore precinct also performed well 0.9pp to 7.8% while sub-lease vacancy also fell recording absorption of 28,992m² leading to the by 0.4pp during the six month period to 0.4% vacancy rate falling by 2.6pp, to 9.1% as of July or just 20,568m². 2012. • The B Grade market was the standout • The largest decline in vacancy across all grade performer during the first half of 2012 with and precincts was the Core B Grade market vacancy declining by 2.3pp to 7.8%; this was on which declined by 4.5pp to 7.1%. This was due the back of 21,093m² of absorption and to strong positive absorption of 15,070m² 19,662m² of withdrawals. combined with no new supply and the • The A Grade market saw a 1.7pp decline in withdrawal of 18,000m² of space during the vacancy to become the tightest market across period. the CBD with a vacancy rate of 7.5%. This was • Colliers International Research forecasts the driven by a large withdrawal of 21,315m² and vacancy rate to continue to decline over the positive absorption of 18,021m². course of the second half of 2012, reaching 7.9% • The Premium Grade market saw a 0.4pp by January 2013. This is due to the ongoing increase in its vacancy rate, rising to 7.8% with combination of limited supply entering the a weak absorption result of -551m² during the market, an increase in withdrawal activity from period. landlords looking to refurbish stock and positive absorption over the remainder of the year. Sydney CBD total office market vacancy Sydney CBD Vacancy by Grade rate 14% 14% 12.2% 12% 20 Year Historical Average 12% 9.6% 10% 10% Vacancy Rate 8% 8.2% 7.8% 7.8% 7.7% 8% 7.5% Vacancy Rate 6% 6% 4% 4% 2% 2% 0% Jul-01 0% Jul-06 Jul-11 Jan-00 Jul-12 Jan-01 Jan-10 Jan-02 Jan-06 Jul-07 Jan-08 Jan-05 Jan-11 Jul-00 Jan-09 Jan-12 Jan-03 Jul-10 Jul-02 Jul-04 Jan-07 Jul-08 Jul-05 Jul-09 Jul-03 Jan-04 Premium A Grade B Grade C Grade D Grade Total Vacancy Factor 20 Year Historical Average Jul-11 Jan-12 Jul-12Source: PCA OMR July 2012 / Colliers International Research Source: PCA OMR July 2012 / Colliers International Research Colliers International | p. 6