"Despite higher inflation, interest rates and economic uncertainty, [office] demand held up over Q3."
Research from Cushman & Wakefield has revealed that prime face rents increased for offices across Australia’s major cities during 3Q22, indicating a sector-wide “flight to quality” towards higher grade working spaces.
Whilst average prime gross effective rents still haven’t matched the figures recorded from 2018 to 2020 (in most markets), the upturn in rent since 3Q21 seems to imply that tenants are not settling for second best. Given the rise in hybrid work, businesses are now more aware than ever that to get employees into the office, they need to have facilities which can motivate a commute.
During our Q&A with Lendlease’s Natalie Slessor earlier this week, Ms. Slessor highlighted the need for a business to create a point of difference that makes trekking into the city worth it:
“The phrase ‘earn the commute’ does spring to mind here; perhaps it’s overused, but there is a point. Is it worth the time, cost and family-juggle to go to a dusty desk in an outdated place?”
Knight Frank recently released figures demonstrating that Brisbane’s CBD is seeing a bolstered demand for spec suites, with 90% of tenant’s briefs having a preference for fitted space in H1 2022 compared to 80% in H1 2021.
“The current strong demand for ‘fitted options’ by tenants is causing landlords to accelerate delivery, where possible, of new spec suites or upgrade or refurnish older existing fitted tenancies to cater for the increased in demand,” stated Knight Frank’s Head of Office Leasing, Mark McCann.
With more tenants opting for these refurbished “fitted options”, a corresponding rise in face rents seems like a natural progression in the market.
So which office spaces are driving this increase in rents? Let’s explore some of the major leasing transactions that have occurred during this most recent quarter.
Melbourne Quarter Tower - Lendlease
Melbourne Quarter Tower
Docklands is home to one of Lendlease’s biggest projects yet; one that is not expected to be completed until 2026. Melbourne Quarter is a new precinct that will contain three next-generation commercial towers, two residential apartment towers, and a diverse mix of retail, and despite being a few years off finalisation, pre-commitment leases are not proving hard to come by, especially for its final stage - Melbourne Quarter Tower.
Back in July, one of Australia’s largest private health insurance providers, Medibank, announced that they would be taking up tenancy in the tower from 2024. They’re set to inhabit a 17,500 sqm office space on a 10-year lease.
“This is what the best companies around the world want for their people, and Medibank’s commitment shows the continuing attractiveness of Melbourne Quarter to progressive companies,” explained Lendlease’s Executive Development Director, Brian Herligy. “We’re looking forward to working closely with Medibank to bring their workplace vision to life.”
The space is set to include interconnecting floors with tiered voids, greenspaces, natural light, a sky garden, a rooftop basketball court, external terraces and a wellness offering. Designed by Gray Puksand, the office is intended to transform the workplace into an inspirational, health-centric environment.
“We want to bring people back together, to connect and collaborate in a meaningful way,” stated Grey Puksand’s Heidi Smith. “The future of work is here.”
Quay Quarter Tower - 50 Bridge Street, Sydney NSW 2000
Quay Quarter Tower
Back in June, AMP announced that their landmark project at 50 Bridge Street in Sydney, Quay Quarter Tower, had secured a major tenant – international trading firm IMC Financial Markets agreed to terms to occupy 5,740 sqm of premium office space across levels 40 through 42, with additional space on level 16. With an eight-year term, IMC will be enjoying the amenities provided at Quay Quarter for the better part of a decade.
Jointly owned by AMP Capital, Dexus and Rest Super, Quay Quarter Tower is the product of refurbishing an existing 45-year-old, 45,000 sqm metre office building, and transforming it into an 89,000 sqm world-class, highly sustainable commercial tower. IMC had previously housed its operations from 50 Bridge Street prior to the redevelopment.
“We look forward to returning to 50 Bridge Street, where it all started for IMC,” commented IMC’s Managing Director, Peter Gavaghan. “Our culture separates us from our competitors, and with a focus on employee experience, we will be actively seeking their involvement in the design process to create an environment that fosters creativity and collaboration while fulfilling their vision of what the ideal workplace looks like.”
Designed by leading Danish architects 3XN in collaboration with Australian architectural firm BVN, the building is comprised of five shifting glass volumes stacked upon each other, punctuated by atrium space. It delivers expansive views of the Sydney Harbour whilst simultaneously maximising natural light. With impressive sustainability credentials, including a 6 Star Green Star Office Design v3 rating from the Green Building Council of Australia, Quay Quarter Tower is a perfect example of what premium office space has the potential to be.
For Cushman & Wakefield’s Head of Research in Australia and New Zealand, John Sears, higher incentive levels are providing an opportunity for tenants to move up the quality curve, which many are taking advantage of.
“Looking at absorption, enquiry levels and pre-commitments in the higher-grade segments shows us that despite higher inflation, interest rates and economic uncertainty, demand held up over Q3,” stated Mr. Sears. “[It was] buoyed by employers looking for ways to attract talent, adapt to new ways of working, and encourage staff back to the office.”
Time will tell if this remains a consistent trend, but given how competitive the world of office leasing has become as of recently, expect rents to rise in accordance with the quality demanded of the spaces they’re for.
