GET in now or risk missing out is the message for prospective CBD office tenants from the chief executive of a major property agent.
Tenant reps in particular will need to reassess demand in the face of altering, high end incentives says Colliers International’s James Young.
“We’re putting people on notice that there is some change coming. There is a general tightening of vacancy. The needle is turning.”
Mr Young’s comments come on the back of Colliers’ second quarter market snapshot which shows a trend towards much lower vacancy rates within new generation CBD buildings and which is likely to peak at a zero vacancy rate in early 2020.
A convergence of factors will drive greater office occupation and density within the CBD, he said.
This includes the impact of the ever expanding biomedical precinct and $4 billion investment heading into Adelaide via new builds, the tram extension, the final tranche of commercial property stamp duty abolition and the coming defence sector jobs boom.
“There are a few stars aligning, some defence companies will choose to be in the CBD because it’s downtown,” Mr Young said.
“They are global businesses and will want to be there. There is a bit of a centralisation conversation going on at the moment.”
The coming 10 gigabit high speed internet connection meanwhile will help make Adelaide a world city he said.
A new, CBD workplace and its surrounding amenities will also prove a stronger pull for Generation Y, Z and Millennials he said with the Adelaide fringe — without the 10 Gig or upgraded amenities in general — an immediate casualty.
Within the CBD, tenant incentives that have been hovering around the 35 to 40 per cent level for some time, will no longer be available the report implies.
“Incentives were 5 and 10 per cent back in the day,” Mr Young said.
“The cost of fit-out remains the biggest barrier to relocation and at 25 per cent there is still the economics for tenant to fund a relocation.”
Landlords will, he said, be more focused on steady rental growth at around 3.5 per cent.
The anticipated new generation building zero vacancy within two years is subjective he said but changes are already happening.
“We have just signed two heads of agreement that will take away 8000sq m of new buildings.
“There has been a tightening vacancy in the last quarter and the next 90 days will see quite a bit of space withdrawn from the market.”
Yesterday’s incentives for tenants are no longer on offer he said.
“You can have new generation space at today’s incentives (only),” Mr Young said.
The Big Four banks will play a part in defining a new look city he said with Westpac in the market for 7000sq m, the first of the major briefs this calendar year.
Such major moves take time to plan and Commonwealth Bank and NAB both have lease expiries coming up after Westpac.
The new Walker Corporation Festival Plaza will offer a new dimension however.
“With any new development, the tightening of new supply is boosting the argument for a new generation of buildings,” he said.