Suburban offices swell as tenants rethink city towers

“I’m not one to make too many predictions … but I just feel the more high-priced office space will have their challenges whereas the economic space will be in demand,” Mr Walker said.

“In just the last six weeks big corporations are starting to look at space and realise they don’t need to be in expensive offices. I just feel the more expensive end of the market is going to get a lot tougher.”

Walker Corp is developing the $3.2 billion Parramatta Square in Sydney’s west and owns one of Melbourne’s newest Docklands office complexes, Collins Square, which was recently awarded the Rider Levett Bucknall Victorian Development of the Year.

Mr Walker said tenants moving to A-grade offices with large floor plates outside of CBD centres – where rents are one third of their central city counterparts – will reinforce demand in commercial precincts like Parramatta.

Face rents – which don’t take into account incentives offered by landlords to tenants – in Australia’s major CBD office markets have held firm despite weaker market conditions, according to CBRE’s latest third quarter Office Market Snapshot.

But the tide is expected to turn as a swathe of COVID-affected tenants move out of their offices boosting the amount being offered in the sublease market, CBRE’s head of office occupier research Joyce Tiong said.

“Overall tenant demand remains weak and, with sublease vacancy exceeding previous peaks, we may see face rents start to fall as incentives continue to rise,” Ms Tiong said.

The average rent per square metre in Sydney’s CBD is about $1265. In Melbourne it is $648 per square metre. In Parramatta, it sits around $700 per square metre for premium-grade offices. The Property Council of Australia puts Parramatta’s vacancy rate at 4.5 per cent, but within premium-grade buildings it’s 1.2 per cent: the lowest in the country.

“We’re seeing a tremendous amount of inquiry from big corporations that are wanting to move out of the expensive space and relocate to the satellite precincts,” Mr Walker said.

“I’m not one to make too many predictions … but I just feel the more high-priced office space will have their challenges whereas the economic space will be in demand.”

In Melbourne, still struggling under a harsh lockdown, Walker Corp has offered rent relief to its retail tenants as the pandemic is “no fault of their own,” Mr Walker said.

“I think there is a lot of alarmists out there,” Mr Walker said, when discussing how quickly the virus spreads and the fear it causes, before adding: “Well, [Victorian Premier] Daniel Andrews is an expert on that”.

“In Melbourne, we’ve been fortunate and very quick off the mark to give rent relief to our retail tenants but the big commercial tenants have been very responsible in paying their way,” he said.

Walker Corp’s major Melbourne tenants include Commonwealth Bank, MLC, Transurban, KPMG, Mars Foods, Tabcorp, NBN and Maddocks.

Mr Walker’s Parramatta Square in Sydney is one of the largest urban renewal projects under way in Australia. It is a three-hectare city precinct with office towers and a new retail and upmarket restaurants, including Maurice Terzini’s CicciaBella and LILYMU run by executive chef Brandon Fong.

In a prescient move late in 2017, Mr Walker switched development plans for a tower earmarked as residential into an office skyscraper. It is now close to being fully leased and will house 4200 state public servants across 43,800 sq m after winning key tenant Property NSW in a tender.