Freshwater Place 2, CBW Overlooked Again as Tenants Race for Docklands

Always the bridesmaid, never the bride.

That must be the sentiment in Australand’s and General Property Trust’s boardrooms, after its 30,000 square metre Freshwater Place 2 office building at 28 Southbank Boulevard in Southbank failed to arouse the interest of yet another major tenant.

The Commonwealth Bank of Australia was this week speculated to have chosen to stay put at its current headquarters in Bourke Street, ending a lengthy search for new office space.

The same "bridesmaid" comments must be being uttered at developer CBus Property’s city headquarters too. It is building a 25,500 square metre office tower at 550 Bourke Street, a building yet to generate an iota of tenant interest.

Both buildings are understood to have made the short list for Myer, Westpac, IBM and Channel Nine, as well as the CBA – all of whom have made leasing decisions in the last six months - but be disregarded for alternative buildings, particularly in Docklands.

And with only a handful of major CBD tenancy requirement left in the marketplace at the moment – city leasing agents warn it is a real possibility neither building will be fully occupied by the time they are complete later this year.

For Australand, the scenario is all too familiar. During construction of its 55,000 square metre Freshwater Place office building at 2 Southbank Boulevard in 2005, most of the building was unleased and only filled after it offered hugely discounted rents to lure tenants from alternative buildings.

Agents concede the same may occur for FP2, and other new buildings including 550 Bourke Street and CBW, which will arrive to the market at about the same time as other offices including 530 Collins Street (to be vacated by ANZ and law firm Arthur Allens Robinson), 40 City Road (to be vacated by Herald and Weekly Times) and 385 Bourke Street (part of which may be vacated by the Commonwealth Bank).

News of a potentially oversupplied office market would be welcome by tenants which have had very little bargaining power since early 2006, when office demand started exceeding supply.

One agent, who wished to remain anonymous, said the situation will result in a “re-rating” of rents in each of the CBD, Southbank and Docklands markets.

“At present, A-grade rents are about 20 to 30 per cent higher in the CBD and Southbank offerings than they are in Docklands,” he said. “By the end of 2008, that gap will almost certainly have closed.”

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