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A word from Rom - Opportunities abound

 

With increasing office vacancy rates in many capital cities, and more than 500,000 sqm of new office space coming online in the next six months, building owners need to think outside the box. 

This means repositioning stock to be competitive against newer, greener, smarter office space. 

And the competition is fierce. Think NAB’s cathedral-like workplace at 700 Bourke Street, which encourages business customers to work alongside staff at drop-in desks and state-of-the-art meeting rooms.

Up the road at 720 Bourke Street, Medibank’s new office features edible gardens, roaring fireplaces and sports facilities.

In Canberra, public servants in ISPT’s National Circuit precinct are working in an ‘urban ecosystem’, with a childcare centre, buzzing plazas and a business centre usually found in a high-end hotel.

And in Sydney, Macquarie Bank’s light-filled headquarters at 50 Martin Place emphasises health and wellbeing, and has one impressive art collection to set the soul soaring.

What is common to all these work spaces? They are all Green Star rated.

While the Property Council of Australia’s latest Office Market Report finds the average vacancy rate across the country has fallen to 10.4 per cent, and demand for office space in Sydney and Melbourne’s CBDs is high, other capital cities are not so lucky.

Perth, Brisbane, Adelaide and Canberra all recorded double digit vacancy rates. And while non-CBD vacancy is down, this was due to an increase in withdrawals, rather than an increase in demand.

Where there is demand, it’s for Prime and A Grade offices. Agents all talk about tenants looking for “good quality, Green Star space”. And there’s no shortage of that around.

Almost two million square metres of new office space has gained Green Star certification in the past year alone.

That’s the equivalent to 200 football fields.

In fact, a quarter of all CBD office space is Green Star-rated.

Barangaroo’s International Towers will soon add 290,000 sqm of Green Star space to Sydney’s CBD market. When blue-chip tenants – and one in 20 workers – move to Barangaroo, what will happen to other parts of the CBD?

This is where some great opportunities lie. Many building owners are looking at repositioning their B and C grade assets. As the Property Council’s Ken Morrison says: “more needs to be done to revitalise or repurpose ageing product, particularly lower grade office stock, into new apartments, hotels and other uses.”

Juliana House in Canberra, for example, lay empty for years before GEOCON saw its potential. Too old to meet federal government office requirements, and sitting on a site too small to be successfully redeveloped into new office accommodation, the building has been transformed into the Abode Woden and is on target to achieve Australia’s first Green Star rating for a hotel.

Knight Frank research predicts that nearly 400,000 sqm of office stock will be permanently withdrawn from the Sydney, Melbourne and Brisbane CBD markets over the next three years – and has identified a further 260,000 sqm of potential withdrawals.

Building conversion accounts for around a third of these withdrawals – and a whopping 80 per cent of developments will be apartments or hotels.

There’s no building more sustainable than one that already exists. Re-lifting old offices can help reshape and revitalise our cities as well as encouraging denser and more diverse neighbourhoods – think Harlem and the High Line in New York, Canary Wharf in London and parts of Berlin.

A market differentiator a decade ago, Green Star is now recognised as a mark of quality in the office market. And once again, it will become a market differentiator for homes and hotels.

But more than a mark of quality, a Green Star rating is a risk-mitigation strategy. International investors, superannuation and sovereign wealth funds are looking for long-term value – and a Green Star rating is one such assurance. 

As ISPT’s CEO, Daryl Browning said recently: “More than 50 per cent of Australian workers have their retirement savings invested in property through ISPT. With superannuation investments at stake, ISPT understands the importance of owning an environmentally-sustainable portfolio. Green Star provides us with an objective measure of cost versus short and long term benefits.”