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OfficeTaryn ParisMon 27 Feb 23

End in Sight for Office Sector’s Race to Bottom

Office continues its descent to the bottom of the market but Prime and A-grade assets are expected to weather the storm better than most.

Colliers research indicates the office sector recovery will be driven by premium grade face rents, which recorded a 6.2 per cent year-on-year growth last year. 

Colliers head of office capital markets Adam Woodward said the recovery of the office market was forecast for March next year with a distinct bifurcation in office assets.

“Unlike historical patterns during times of economic turbulence, office leasing and capital values are not currently aligned,” Woodward said.

“This means demand for new and enhanced workplace environments will see average capital values for Premium and A-grade office assets in CBDs decline by around 5 per cent and 12 per cent respectively, while values of B Grade assets may fall by as much as 20 per cent by March 2024.

“We anticipate capital values across all grades will commence recovery post March 2024, however, Prime values will remain significantly stronger.”

Woodward said wellness, experience and ESG features would redefine the investment landscape this year.

It is good news for Argo Group as they press ahead with the construction of a $30-million office block at South Melbourne, following City of Port Philip Council approval. 

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▲ Argo Group managing director Nick Argyrou said they would commence construction on the new office building at South Melbourne later this year.

Taking style cues from the surrounding terrace homes, Fender Katsalidis designed Tichborne Place’s 3727sq m offering as four independent six-storey office blocks.

Argo Group managing director Nick Argyrou said sensitive design had helped streamline the planning approval process. 

“South Melbourne is home to many beautiful Victorian homes and light industrial buildings but it is certainly undergoing a transformation into a precinct of office and commercial showrooms,” he said.

“Working collaboratively with the City of Port Philip, we were able to present them with a unique design that not only honoured the city’s past but also aligned with the vision for its future.”

The frontage to Tichborne Place is wide and almost entirely surrounded by smaller bluestone lanes, allowing opportunities for access on all sides, northerly light and, on the upper levels, views towards Southbank and the CBD.

Argo Group is expected to begin construction and the sale of the individual commercial spaces in mid-2023.

It builds on the growing trend towards CBD fringe office precincts in Melbourne, which continues to struggle with office occupancy levels. 

Melbourne tenants are being offered up to 40 per cent incentives to encourage them into high-end space, while office occupancy languishes about 57 per cent 

Colliers research indicated Singapore and Hong Kong were likely to be the largest offshore capital investors in the office market again this year, collectively tipping in $3.5 billion into the sector last year. 

But about half of this investment was in the NSW market. Sydney’s CBD remains a hotspot for office investment, according to Woodward. 

OfficeIndustrialMelbourneAustraliaPlanningConstructionConstructionSector
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Taryn Paris
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Article originally posted at: https://theurbandeveloper.com/articles/premium-grade-office-face-rents-australia-commercial-real-estate