Office landlords in Brisbane now more flexible on issues that matter
Brisbane CBD landlords are becoming more responsive to the needs of corporate tenants as the owners and managers of the city’s office towers seek to retain existing occupants, and fill the empty spaces, in one of the weakest office leasing markets in the country.
Landlords are not giving any more away on the financials. Rents and lease incentives have stabilised, albeit at figures – such as incentives equivalent to 30-40 per cent of the total rental bill – that are some of the most tenant-friendly in the country.
But landlords are becoming more flexible on other issues that matter to tenants. Lease terms, such as expansion and contraction rights, are more open to negotiation, and new services for occupants, both personal and business, are being introduced.
In another significant shift, Brisbane landlords are creating small office suites, on a speculative basis, ready for small tenants to move straight in, plug in their technology, and start work. In the past, smaller tenants had to fit out the office space themselves in what was a costly, time-consuming and management intensive process.
Andrew Johnson, the managing partner of AJ&Co in the company’s new offices in Brisbane. Photo: Glenn Hunt
In February 2016 lawyer Andrew Johnson started his own boutique practice with two lawyers in a small, 159-square-metre incubator suite in Waterfront Place, a Brisbane landmark, owned and managed by the DEXUS Property Group. Today the firm, AJ & Co Lawyers, has about 20 lawyers and this month moved up to a full but contemporary legal office over 850 square metres, higher in the tower.
“DEXUS have not been a landlord but a business partner,” said Mr Johnson, now managing partner of AJ & Co. “They have done a good job of nurturing and supporting our business.”
DEXUS gave AJ & Co enough lease flexibility to grow; the DEXUS Connect program introduced Mr Johnson and his team to new business opportunities and potential clients; and the DEXUS Place operation on Level 31 provided concierge-assisted meeting, event and conference facilities which reduced the need for AJ & Co to devote space to its own meeting rooms.
Mr Johnson said his new office reflected the disruptive nature of his practice. “The new space is very non-traditional and more like an airport lounge,” he says. “People are not ushered out of our office; they are welcome to stay and network.”
Brisbane, beset by overbuilding and the collapse of resources investment, has one of the highest CBD office vacancy rates in the country.
Mark Curtain, the regional director, office services for global real estate group CBRE, said one response from landlords had been to offer more ancillary services for tenants. New offerings include more retail outlets, more food and dining, new childcare facilities and shared meeting and entertainment spaces.
“You can map out your day without leaving the building,” Mr Curtain said. “People are more productive.”
He also noted that landlords were trying to better understand their tenants’ businesses. In today’s environment, those operations can grow, or contract, rapidly.
“The whole structure of the deal can offer some elements of flexibility,” Mr Curtain said. “But there is only so much landlords can do, because they need certainty of cash flow.”
Giles Knapman, director of tenant advisors Kernel Property also said that landlords had become more flexible. Potential tenants could negotiate better expansion and contraction options; they are more likely to gain “fully effective” market reviews: and they could reduce their ”make-good” liabilities at the end of the lease.
(It can cost outgoing tenants $300-$350 a square metre to return an office space to how it was before they moved in, according to Kernel Property.)
Of course all of those factors – the attractive rents, increased facilities, and more flexible leases – will not make much of an immediate dent on the city’s office vacancy.
Origin Energy will move its headquarters to the new Daisho tower at 180 Ann Street in the CBD. Photo: Supplied
Global real estate group Colliers International forecasts that the vacancy rate, which the group estimates at 15.3 per cent in the first quarter of 2017, will drop to 14.6 per cent by the first quarter of 2018. Face rents, which exclude lease incentives, are expected to rise just 1 per cent.
“With Brisbane past the peak of its current supply cycle, vacancy has commenced its downward path, led by the premium end of the market,” reported the Colliers’s director research, Daniel Lees, in the group’s CBD Office First Half 2017, Research and Forecast Report. “We see prime vacancy falling over the next two years as tenants upgrade office space, enticed by incentives and competitive effective rents.”
However, the lure of the CBD, in competitive rents, high incentives, better space and more flexible deals, will make an impact on the city fringe market as tenants move closer to the centre. Leading the shift, Origin Energy will move its headquarters to the new Daisho tower at 180 Ann Street in the CBD – and leave behind a big space to fill at Coronation Drive in Milton on the city fringe.
Kernel Property’s Giles Knapman said the Brisbane fringe market would “really suffer” as the “reverse ripple” took hold.
More conservatively, Colliers International’s manager, research, Helen Swanson predicts that the Brisbane fringe vacancy could “creep up” from the 12.6 per cent of January as several tenants vacate in late 2017 and early 2018. 2015.
“We anticipate vacancy could head north to sit at 14-15 per cent by mid-2018,” she wrote in the Brisbane Metro Office, First Half 2017, Research and Forecast Report. “As this occurs, we anticipate that incentives could increase slightly further to sit at an average 35 per cent.”
