Swathes of office space are set to be removed from CBDs across the country in the next five years in a move that’s been dubbed “the great withdrawal”.

Led by Sydney, it’s one of the lesser-known trends set to drive Australia’s office market recovery, according to a new CBRE research report.

CBRE Research Manager Thomas Biglands noted, “There is now reason to believe that vacancy rates in most Australian markets have reached their cyclical peaks as leasing activity gathers steam, more workers return to offices and new construction remains on the backburner. A less talked about factor has been the anticipation of significant levels of inventory withdrawals, which are likely to be well above historic levels in most CBD markets, helping to drive vacancy rates down.”

The Sydney CBD is at the forefront, with CBRE identifying 241,336 sqm of office space that could be withdrawn from the market by the end of the decade – representing 4.6% of the city’s existing office inventory.

That’s a significant shift in a city where new supply has typically far outweighed withdrawals.

Based on CBRE forecasts, new Sydney CBD supply will be down 61.2% over the next five years compared to the trailing five-year period, while withdrawals will be up 92.6%.

Some office stock is set to be permanently withdrawn as these buildings are converted or redeveloped for an alternative use such as apartments or hotels. These building are all outside the CBD Core in the city’s Midtown, Western Corridor, and Southern precincts, which have been hardest hit by a tenant flight-to-quality migration.

Temporary withdrawals are also on the cards, involving sites that are earmarked for new office towers. Given new construction can take five or more years, these withdrawals will still have a material impact on vacancy rates and rental growth, Mr Biglands said.

These building are all in either the city Core or the northern end of the Midtown precinct – the only areas of the CBD where new office development is feasible given the current construction climate.

Potential withdrawals are also included in CBRE’s figures, involving existing office properties which have mooted redevelopment plans.

Office space in these buildings is still available but the leases are either short term or include demolition clauses, with the projects not likely to move forward until later in the decade.

CBRE’s report notes that additional withdrawals are also highly likely in the coming years.

“The ongoing bifurcation between Prime and Secondary office leasing fundamentals has resulted in a significant pool of struggling lower grade assets in the more challenged precincts and submarkets across Sydney,” Mr Biglands said.

“While these properties are struggling to compete as office assets, fundamentals in other property sectors are more compelling. Market dynamics in residential, hotels, education, and data centres sectors are all much stronger than for secondary office at present.”

CBRE Office Leasing Director Chris Hanley believes the withdrawal trend will change the game for lower grade and less active Sydney CBD submarkets.

“Tenants in these lower grade assets are usually on very cost-effective terms so they’re unlikely to trade up to prime grade stock,” Mr Hanley said.

“If we look back to the last cycle, withdrawals associated with residential conversions sent B-Grade and lower A-grade rents sharply higher and this may play out again if all the withdrawals are realised.

“We are already seeing a significant uplift in enquiry across Midtown and the Western Corridor as value-seeking tenants start to seek relocation options as leases in buildings like 175 Liverpool Street and 338 Pitt Street approach expiry. Quality stock with existing fitout is moving very quickly and availability of this product is getting thin.”

CBRE’s report notes that the withdrawal of 50,000 sqm of office space equates to circa 1.0% of vacancy rate tightening – highlighting the major impact that the withdrawal trend could have.

The current CBRE base case forecast for the Sydney CBD is for the overall vacancy rate to declining from 12.8% as of year-end 2024, to 9.1% in 2032 when the next major wave of new supply is expected.

However, the vacancy rate could shrink to as low as 5.4% by 2032 if all the identified withdrawals proceed, or 7.0% taking a more conservative view that only the permanent withdrawals will proceed.

For a copy of the report, contact CBRE’s Tina Liptai at tina.liptai@cbre.com.

The Australian seniors living sector is a rapidly evolving industry driven by the aging population, government policies, and growing demand for more flexible and diverse living options for older Australians.

With the increasing number of people aged over 65, the sector has seen significant growth and transformation over recent years.

As well as highlighting recent sales and trends in the market, the latest CBRE Senior Living report explores three key segments of the sector: aged care, retirement living, and land lease communities.

1. Aged Care

Aged care in Australia provides a range of services designed to support older individuals who can no longer live independently.

The sector is essential due to the increasing number of Australians aged 65 and over.

By 2050, it is estimated that one in four Australians will be over the age of 65, placing substantial pressure on aged care services.

Increases in construction costs have also impacted the aged care sector disproportionately compared to other sectors, with additional compliance requirements seeing average development costs per bed of $400,000–$450,000.

The aged care system in Australia is a mix of government-funded services, private facilities, and not-for-profit organisations.

Aged care services range from home care packages to residential aged care facilities.

The federal government plays a critical role in funding and regulating the sector, with the Department of Health overseeing the delivery of services.

Key Trends:

• Home Care Packages: There has been a growing preference for home care services, allowing seniors to remain in their homes for as long as possible. These packages provide funding for personal care, nursing, domestic assistance, and other services, helping to delay or prevent the need for residential care.

• Residential Aged Care: The demand for residential care continues to rise, particularly as the population ages. However, the industry has faced significant challenges, such as staffing shortages, regulatory changes, and concerns about quality of care, which have been highlighted in reports such as the Aged Care Royal Commission.

• Regulatory Changes: The Aged Care Royal Commission, which concluded in 2021, resulted in a series of recommendations aimed at improving care standards, including increased funding, better staff training, and greater transparency. The implementation of these recommendations is expected to reshape the aged care landscape.

2. Retirement Living

Retirement living refers to housing options designed for older adults, typically aged 55 and above, who are generally independent but prefer the security and convenience of living in a community tailored to their needs.

Retirement villages can include independent living units, assisted living services, and community activities that promote social interaction and engagement.

In Australia, the retirement living market is highly diverse, ranging from smaller, local villages to larger, resort-style developments.

The sector has grown as more Australians choose to downsize and seek more manageable housing options as they age (continues below).

Key Trends:

• Upscale Retirement Living: Over the past decade, the demand for high-quality retirement communities has increased. These developments offer luxury amenities such as pools, gyms, and on-site healthcare, appealing to wealthier retirees looking for a comfortable lifestyle. These communities often provide a range of additional services, including health care and recreational activities, enhancing the appeal to affluent retirees.

• Aging in Place: Many retirement villages are adapting their models to accommodate residents who may need increasing levels of care over time. These villages are integrating more flexible care services, such as home care and assisted living, allowing residents to stay within the same community for longer.

• Financial Models: One key aspect of retirement living is the financial model used for the properties. Typically, residents purchase the right to live in a retirement village, often through a leasehold arrangement or a “loan for lease” structure. As the market matures, new models, such as shared equity and rent-to-buy schemes, are emerging to make retirement living more accessible to a broader range of seniors.

3. Land Lease Communities

Land lease communities are a unique form of seniors living in Australia.

These communities consist of privately owned land on which residents lease their homes.

This model allows seniors to purchase a manufactured or modular home while renting the land it sits on.

The homes in land lease communities are typically more affordable than traditional retirement homes and offer greater flexibility for the resident.

Land lease communities are becoming an increasingly popular option for retirees seeking more affordable housing, particularly as the cost of traditional retirement living options continues to rise.

These communities often provide residents with a sense of ownership, while also benefiting from the shared services and social activities typical of retirement villages.

Key Trends:

• Affordability: The affordability of land lease communities is a key factor in their growing popularity. Many retirees are drawn to these communities due to the lower upfront costs compared to buying a house or even purchasing a retirement village unit. The ongoing rental payments for the land are generally more affordable than purchasing a traditional home.

• Regional Growth: Many land lease communities are located in regional and coastal areas, attracting retirees looking to downsize and live in more relaxed, scenic environments. This trend has accelerated due to the rise of remote working and a desire to escape crowded cities.

• Sustainability and Innovation: Some land lease communities are adopting sustainable building practices and providing eco-friendly homes. With an increasing focus on environmental impact, these communities are appealing to a more eco-conscious senior demographic.

Evolving sector

The Australian seniors living sector, comprising aged care, retirement living, and land lease communities, is undergoing significant transformation.

As the population ages, the demand for housing and services tailored to older Australians will continue to grow, creating a dynamic market with evolving investment opportunities.

Recent sales and trends in each segment reveal that the sector is attracting substantial investment, signalling its long-term potential.

However, the challenges of affordability, regulatory compliance, and care standards remain important factors that will shape the future of this critical sector.

For CBRE’s Seniors Living report, contact Marcello Caspani-Muto at marcello.caspani-muto@cbre.com.au.

There is no end in sight for rising apartment rents, with five Australian markets likely to record mid to high 30% rental growth between now and 2028, according to new CBRE forecasts.

CBRE’s Apartment Rent and Vacancy Outlook examines 53 precincts in Australia’s major capital cities.

Median rents for two-bedroom apartments across these precincts are expected to grow by $120/week (+26%) between 2023-2028, underpinned by a further decline in city vacancy rates from the current average of 1.8% to just 0.8% – around one-third of the previous decade average.

The highest growth of +30% is expected to occur in five markets: Sydney’s Eastern Suburbs, Parramatta, Melbourne North, Perth City and almost all precincts in Brisbane.

CBRE’s Pacific Head of Research Sameer Chopra noted, “At the start of 2013 just four precincts in Australia had an average rent of over $600/week for two-bedroom apartments, being the Sydney and Perth CBDs, Sydney’s Eastern Suburbs and Sydney’s Lower North Shore. By June this had grown to 20 precincts and by 2028 we expect 38 precincts – or over 70% of Australia’s two-bedroom apartments – to have a rent exceeding $600/week.”

Tightening vacancy rates have been a major driver, with Mr Chopra noting that vacancy rates need to be around 4%-5% for markets to be in balance.

To stave off further falls in vacancy rates ~75,000 of new apartments per annum would need to be delivered across Australia to keep pace with population growth.

But supply is lagging with CBRE forecasting new stock will be ~60,000 in 2024 and 2027 – 40% below the previous peak in 2017 and near decade lows (item continues below).

Notwithstanding the outlook for rents and vacancies, Mr Chopra said he still expected the cost of renting to remain more affordable than purchasing across Australia’s major cities.

“Australia’s monthly apartments rents are currently 30% cheaper than purchasing at current prices across most precincts. The reversion of interest rates to say 2%-2.5% could see this relative rental affordability remain as capital values rise.”

Eastern seaboard outlook

Sydney:  Apartment delivery to average 14,000 pa over 2024-28, well below 33,000 pa demand for housing stock. Vacancy rate is set to fall from 2.2% to 0.8% and average rent growth of 6% pa to 2028.​

Melbourne:  Apartment delivery to average 10,000 pa over 2024-28, nearly 40% below Sydney. Demand for housing stock (apartments and communities) is likely to average 38,000 pa over the next five years. This should continue to drive down city-wide vacancy from 1.7% to 0.9%.​

Brisbane:  Apartment delivery to average 6,500 pa over 2024-28. Demand for housing stock (apartments and communities) is likely to average 16,500 pa which will drive down city-wide vacancy from 1.1% to 0.8%.​

For a copy of the 19 page report, contact Craig Godber at: craig.godber@cbre.com.

While Australia’s CBD retail vacancy rate rose in the first half of the year current enquiry levels suggest the market has bottomed out, particularly in Sydney where a relatively quick recovery is anticipated.

CBRE’s H1 CBD Retail Vacancy report highlights that the national vacancy rate softened from 13.9 per cent in H2 2022 to 15.0pc in H1 2023.

It was a mixed bag, with vacancy declines recorded in Perth and Adelaide while increases were clocked in Sydney, Brisbane and Melbourne.

CBRE Research Analyst Darcy Badgery noted, “Overall vacancy has softened nationally, coming off seasonal highs in H2 and lower spending, however rising office occupancy rates and the return of international tourists and students has increased visitation. We’re also seeing a national flight to quality trend, with our latest Live, Work, Shop survey highlighting that 61pc of retailers want to increase the quality of their store locations.”

The biggest H1 vacancy decline of 0.77pc was recorded in Adelaide, with a 0.74pc tightening in Perth.

While Melbourne’s vacancy increased by 0.8pc, the city now has the lowest vacancy in the country at 10.7pc.

This followed a 2.49pc increase in Sydney’s vacancy rate to 10.8pc.

A vacancy increase was also recorded in Brisbane (+1pc to 19.5pc) .

CBRE’s Australian Head of Retail Leasing Leif Olson noted, “While the overall national vacancy rate has increased, based on current enquiry levels we expect to see vacancies contract across all markets over the next six months. This is particularly the case in Sydney, with deals pending several large arcade vacancies and strong enquiry from food & beverage and luxury fashion retailers who are seeking new opportunities.”

AROUND THE GROUNDS

Sydney

Despite overall vacancy softening, strip retail vacancy tightened significantly, dropping 3.19pc to 6.9pc.

This followed a surge in leasing deals in prime locations to brands including Adidas, NBA and JD Sports and continued activity by luxury retailers seeking to open flagship stores to remain competitive.

The overall CBD increase was attributable to a 406 basis point vacancy rise in arcade retail space and a 320bps rises in centre vacancies, largely due to tenancies becoming available following the refurbishment of the General Post Office coupled with difficulties in leasing upper-level retail centre tenancies.

CBRE’s report forecasts that increases in international visitor numbers, returning international students and a growing number of CBD events are expected to continue to boost city visitation and overall retail spending.

Melbourne

Melbourne’s H1 vacancy softened slightly after the traditional trend of tightening vacancy leading up to the Christmas and holiday period.

In line with Sydney, the softening was led by centres and arcades – particularly upper-level stores, as retailers gravitated towards prime strip locations.

CBRE Associate Director, Retail Leasing, Jason Orenbuch noted that Melbourne’s strip vacancy tightened by 42bps to 10.5pc, with takeaway food outlets filling many of the vacancies to meet demand as office occupancy rates rise and international students return.

“Occupiers in the hospitality sector are also seeking out partially or fully fitted out space in hospitality hotspots such as Flinders Lane and Swanston Street,” Mr Orenbuch said. “There was also an uptick in the development of new stores in H1, which will draw new retail additions to the city and help lift CBD visitation.”

Brisbane

Brisbane’s overall CBD vacancy rose 1% to 19.5% primarily due to a rising number of empty shops in the CBD’s shopping centres and arcades.

Set against this, CBRE Associate Director, Retail Leasing, Tanaka Jabangwe said there was high demand from national and international retailers for super prime stores on the city’s retail strips.

“This was highlighted by Louis Vuitton’s move to a new mall location in the NAB Heritage Building, which is double the size of its previous store in Queens Plaza,” Mr Jabangwe said.

“The demand for flagship outlets is being fueled by workers returning to the CBD and a resumption of international tourism, as retailers tap into the continued demand for experience-based, physical stores.”

Mr Jabangwe said hospitality retailers were also driving demand for strip retail stores to cater to Brisbane’s growing number of inner-city residents. This resulted in a range of new lease commitments in the first half of the year, including Maru Grill on Mary Street, La Boca on Edward Street and Scugzini on Adelaide Street.

“The city’s vacancy issues are primarily associated with upper-level centre tenancies as retailers gravitate towards strip retail locations. An example involves Glue moving out of its store above JD Sports on Elizabeth Street to a new mall location early in 2023,” Mr Jabangwe noted adding that centre tenancies with street exposure continued to attract demand.

Adelaide

Adelaide’s CBD retail vacancy contracted 77bps to 12.4pc in H1 following a very significant drop of 371bps in H2, 2022.

CBRE Retail Leasing Executive Scott Chow said activity in the CBD had been heightened by the reintroduction of major events including the Adelaide Festival in March 2023, in addition to a resurgence in travel-related retail expenditure.

“Demand for retail space on Rundle Mall continues to run high, particularly from luxury retailers, and with space being tightly held we’ve seen interest from high profile tenants in space around the western end of the mall, which has historically seen high levels of vacancy,” Mr Chow said.

“This comes off the back of major international brands like Uniqlo opening flagship stores in Adelaide and highlights the ‘flight to quality’ and ‘experiential’ retail trends being evidenced across the country.”

The vacancy in Adelaide Arcade remained at 0pc in H1 – the lowest rate in the country. A recovery in office worker lunch time spending has also been evident, lifting food retailing activity.

Perth

Perth’s CBD retail vacancy has continued to steadily decline, dropping by 74 basis points in H1 to 25.4% – the lowest level in two years.

CBRE Senior Director & WA Head of Retail Fred Clohessy said retailer/tenant interest and enquiry was re-established in late 2022 when confidence returned in travelling to and from Perth following border closures.

“This has carried into 2023 and continued to break down the CBD’s high retail vacancy rate,” Mr Clohessy said, noting that the strip retail vacancy rate dropped 31bps to 25.4%.

“The addition of retailers such as Sunglass Hut and Peter Jackson on the Hay Street Mall have helped to reduce the city’s strip retail vacancy rate, with Murray Street Mall continuing to be tightly held.

“Demand for prime space from luxury brands is having a positive effect on rents and future vacancy levels. However, rents are still correcting on Hay Street Mall and in secondary locations where vacancy is concentrated, and higher incentives are being sought by retailers.”

CBRE’s report also highlights that Perth’s high office occupancy levels post-COVID has increased demand for lunch and dinner venues in sections of the CBD.

Mr Clohessy noted that the return of events, tourism international students, and WA’s strong economic climate provided a continued base for further vacancy declines over the remainder 2023.

For a copy of the Australian CBD Retail Vacancy 1H 2023 report, contact: darcy.badgery@cbre.com

Australia’s CBD office vacancy rate rose again over the last six months – from 12.6 to 12.8 per cent – led largely by a combination of dwindling demand and rising supply.

Leading the charge is Adelaide, where 17pc, or put another way, about one in six, offices are empty.

Perth and Melbourne are also experiencing particularly low occupancy – 15.9pc (up from 15.7pc) and 15pc (up from 14.1pc), respectively, of city offices in those towns are for lease.

In Sydney – the country’s biggest office market – vacancy stayed about steady from 11.3pc last August to 11.5pc now.

That said, its rate was a relatively healthier 10.1pc in August, 2021 before several major buildings entered the stocklist, amongst them the 89,000 square metre Quay Quarter Tower.

Only two major markets recorded vacancy falls in the last six months – Brisbane, now 11.6pc from 12.9pc last August, and Canberra – where 91.8pc of offices are occupied, up from 91.1pc.

Australia’s CBD office vacancy rate hit record territory in August, 2021 – at 11.9pc, it was the highest since 1996, according to the Property Council of Australia, which compiles the data twice annually.

Other important numbers

Also, according to the research, for the six months to July, 2023, nationally:

• CBD office net absorption (the amount of space leased less that emptied) was -21,740 sqm, and
• CBD space added was 190,057 sqm.

The forecast short term future supply (for the second half of this year) now sits at 227,676 sqm.

Suburbs more warm than hot

Factoring in a half dozen major non-CBD office markets, Australia’s office vacancy rose from 13.4pc six months ago to 14.1pc, according to the PCA’s 2H 2023, or July, 2023, Office Market Report.

Excluding CBDs – so effectively rating key city fringe and suburban regions, vacancy rose more sharply this year, from 15.2 to 17.3pc.

Like some cities, performance is negatively affected in many metropolitan markets by a building boom spiking supply. The trend to work outside of town however is expected to absorb much of that in the medium term.

In Sydney and Melbourne, many CBD landlords have been heavily discounting and/or improving their product, including with green credentials, in order to attract businesses which were thinking about decentralising (and encourage staff to work away from home).

“Nationally, quality and the flight to, continues to be key across our CBD and metro leasing markets,” Cushman & Wakefield head of Office Leasing, Tim Molchanoff, said.

“Also with the high construction cost environment, speculative fitouts and increasingly full floor speculative fitouts are a very attractive option for incoming tenants and increasingly more common,” he added.

“Competition between landlords across the major CBD office markets remains strong, which is keeping incentives elevated,” according to the executive.

“However, tenants are looking beyond price alone, and landlords will need a strategy to differentiate their offerings in order to capitalise (story continues below).

“With higher grade supply coming online in some markets, tenants now have more options are they seek to upgrade their office premises.

“While this is pushing up face rents, that growth is still being capped by higher incentives”.

Sand shifting in Melbourne

Melbourne’s CBD office vacancy is expected to remain high as a building boom which kicked off just before COVID, delivers.

That said, the market has been active with several major deals for incomplete buildings struck, amongst them, Ericsson leasing within Charter Hall and GIC’s 555 Collins St, which is now 70pc full, and Medibank pre-committing to 17,500 sqm at #699, in the street.

Even more are in the works with several requirements – totalling c120,000 sqm – in the market.

“While the overall market vacancy rate continues to rise, office sentiment on the ground is cautiously optimistic,” CBRE’s head of Office Leasing, Ashley Buller, said.

“The trend of overall deal size increasing has continued as larger tenants gain further confidence in the longer-term needs around office occupancy and subsequently their office size,” he added.

“Fitted space continues to gain strong interest from tenants due to the uncertainty around construction costs and delivery, with many owners now speculatively constructing whole floor fit-outs, typically refurbishing front of houses and break out spaces,” according to the executive.

“This provides benefits from both an environmental waste point of view and cost savings, which can then be offered to prospective tenants”.

Groups in the education sector are particularly active for space, he said, with over 15,000 sqm leased to them in the first half of the year.

“A big percentage of Melbourne’s largest transactions continue to take place in Docklands, with many of these deals in sublease space,” Mr Buller said.

Incentives are expected to pick up in the short term as further supply comes online, according to the executive.

Colliers’ head of Office Leasing, Andrew Beasley, said the number of leases struck in the first half of this year was 27pc higher than the comparable period last year.

“With only one development to be completed in 2023 [Charter Hall’s 555 Collins Street – which is now 70pc committed] and a number of larger tenant briefs (5000 sqm-plus) that are…active (120,000 sqm in total), we expect to see an improvement in the demand/supply balance over the coming six to 12 months,” he added. 

“We also witnessed stronger enquiry levels than previous years, particularly now at the larger end of the market” according to the executive.

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A travel evolution sparked by the pandemic is driving the growth of Australia’s boutique hotel market, amid heightened demand for unique and hyper-personalised hotel stays.

While boutique hotels have traditionally achieved lower occupancies, room rates and revenues than their larger, international rivals the tables have turned according to new CBRE Viewpoint, which highlights a significant shift in domestic travel demand.

CBRE’s Australian Head of Hotels Research Ally McDade said an analysis of market performance showed that boutique properties had outperformed ‘big box’ international hotels since the 2020 onset of the pandemic across all three key performance indicators – occupancy, Average Daily Rate (ADR) and Revenue Per Available Room (RevPar).

On a RevPar basis, the basket of boutique hotels studied by CBRE performed over 50 per cent better, with occupancy rates and ADR being 21pc and 27pc superior to the luxury international hotels in the analysis.

“The pandemic dramatically changed how and why we travelled. International borders shut down, leisure-based tourism was restricted to local demand and corporate travel was reduced to historically low levels,” Ms McDade said.

“Over two years on, many of the resulting trends such as remote working and virtual conferencing, ‘staycations’, and the continued growth of social media use for destination ‘collecting and bragging’, have become imbedded in our lifestyles, shifting guests’ preferences towards a highly personalised and hybrid approach to their hotel stay experience,” Ms McDade added.

“This travel evolution is being increasingly met by the rise of the boutique hotel culture with its intimate and sophisticated offering and attention to design detail”.

While traditional big box international hotels have always been heavily favoured by corporate travellers and international visitors, CBRE’s Viewpoint notes that the recovery of Australia’s visitor economy has been driven by domestic, leisure-based tourism (story continues below).

“The growth of this local traveller has resulted in demand for a curated hotel offering, which is being met by Australia’s new wave of boutique hotels that blend intimacy and sophistication, and authentically resonate with the feel of the city being visited,” Ms McDade said.

Ms McDade added the strong performance of the boutique sector also reflected new properties entering the market at higher ADR thresholds as well as the ability to drive rates harder on properties with smaller room counts relative to traditional large, luxury hotels.

However, it’s not time to write off the larger hotel chains amid a continued recovery in corporate/MICE travel and a resurgence in international tourism – both of which typically favour big box international properties.

“The continued recovery of corporate travel and international arrivals, coupled with more Australian’s travelling abroad, will broaden the mix of hotel business demand and ultimately moderate the exceptional outperformance we’ve seen from the boutique sector in the past two years,” Ms McDade said.

“The continued growth of boutique hotels in Australia will rely on their ability to deliver a personalised offering, while capitalising on new and emerging travel trends such as bleisure, where a leisure component is added to a business trip; workations, where some work is tacked onto a holiday, and dog friendly travel such as Ovolo’s V.I.Pooch stays.

“Social engagement, forward-thinking tech and an increased focus on eco-friendliness are also expected to play a role in catering to an ever-increasing demand for hyper-personalised hotel stay, which boutique hotels are well placed to deliver due to their smaller size and independent operational structure”.

Positivity has returned to the Australian retail sector with new store openings on the drawing board amid a renewed focus on bricks-and-mortar outlets, according to a new CBRE survey.

Of the Australian retailers polled for CBRE’s APAC Retail Flash Survey, 83 per cent plan to open more stores this year with just 6pc planning to decrease their network size.

“While cost inflation will present ongoing challenges, given lingering labour shortages and higher operational costs, expansion is top of mind for retailers, with 61pc of the survey respondents planning to improve their store locations,” said Kate Bailey, CBRE head of Retail Research, Australia.

“One third of the retailers we polled also plan to increase the size of their store footprints to build more experiential elements into their stores and capitalise on the easing in rents that occurred over the past three years,” she added,

The survey also highlights retailer confidence in bricks-and-mortar retail outlets, with 58pc of respondents planning to increase their number of standalone stores (story continues below).

“Just 11pc of the respondents said they would increase their number of click and collect outlets, while 28pc said they would increase the number of pop-up and in-store concessions, which suggests that retailers are confident in the future of traditional retail outlets,” Ms Bailey said.

Other key survey findings include:

• 89pc of retailers believe that workers returning to offices will have a positive impact on the CBD retail sector

• One of the top three real estate portfolio strategies for 2023 involves lease renegotiation or restructuring amid growing demand for force majeure clauses after the pandemic and a shift to a turnover rent model, in what is still a tenant-favoured market.

• All respondents reported an increase in fit out costs compared to the period immediately before the onset of the pandemic. While this is expected to moderate in 2023, costs are expected to remain elevated, which will impact some retailers’ expansion plans.

This is an excerpt of a CBRE Research report republished with permission. To download the full document, follow this link.

Supply is again the leading reason for a rise in national CBD office vacancy – to 12.5 per cent from 12pc in August, according to the Property Council of Australia’s bi-annual Office Market Report, released today.

As opposed to six months ago and last February, however, demand for space, particularly Premium and A-grade quality, is increasing.

Tenant enquiry rose one per cent in the second half of last year; agents say the strongest demand came in the fourth quarter.

But with even more part-empty new offices set to be added to the PCA stocklist in its next [August 2023] report, brokers estimate the vacancy rate will continue to hover at the lower end of between 12-14pc all year.

Fortune favours the tenant

On the east coast, city and fringe markets are still competing with suburban offices for small to mid-size tenant clients, as business managers continue to get creative in an attempt to entice staff out of home – with many considering a less dense environment a luring factor.

However, with much of the CBD supply being owned by institutions – and with capital value attached to lease covenants – the biggest bargains, for occupiers, could come from towns or fringe markets where supply could spike like, in Melbourne, Collingwood, Cremorne or Fishermans Bend.

National snapshot

Office vacancy fell slightly in the Brisbane CBD – to 12.9pc from 13.9pc – and Perth (15.8pc from 15.6pc).

In the country’s biggest market, Sydney, the amount of empty area rose from 10.1pc to 11.3pc.

Compared to six months ago, there is now also more space available in Adelaide (where vacancy is 16.1pc), Canberra (8.9pc) and Melbourne – the latter with a vacancy of 13.8pc.

Again, Hobart has performed strongly; only 2.5pc of its CBD office accommodation is untenanted.

Bleeding stops in Melbourne

JLL’s James Palmer said Melbourne’s fringe market performed better than the CBD.

In its suburbs, he added, tenants took 80,000 sqm more space than they vacated for the calendar year.

“On the supply side, both the CBD and fringe market remain highly active, with more than 200,000 sqm under construction,” according to the executive.

“There was, however, just one whole building refurbishment which was completed in 2022, delivering 25,100 sqm…into the CBD.

“This is on the back of approximately 500,000 sqm of new developments which completed in the CBD over 2020-2021.

“Demand also remains high in the smaller tenant cohort (less than 1000 sqm), which represented a large percentage of leasing demand within the CBD market in 2022.

“Further to this, the emergence and demand for speculative suites has greatly demonstrated a trend of tenants returning to the workplace and an appetite for organisations to provide a new fitout to entice employees back to the office.

“Sublease space also decreased in 2022 and is anticipated to further retract throughout 2023.

“Throughout 2022, the adaption of the hybrid work model has had an opportunity to play out for more than 12 months post lockdown, resulting in tenants being able to better predict how their office space requirements may look moving forward.

“As a result, the CBD market is moving further towards its post pandemic norm as more tenants embrace new workplace strategies”.

ESG, from both a corporate governance and policy perspective, is also a demand driver, Mr Palmer said.

The Melbourne CBD office vacancy rate 12 months ago was 8.2pc.

Market still shifting: agent

Cushman & Wakefield head of Office Leasing, Tim Molchanoff, said the major capital city office markets are still affected by shifting.

“Shifts in ways of working, the economic cycle and financial markets will all play a role in shaping tenant demand,” he added (story continues below).

“The big ticket objectives last year of getting people back to the office and attracting talent in a tight labour market aren’t abating,” according to the executive.

“This is now leading occupiers, particularly smaller organisatons, to pursue quality space, albeit in some cases, smaller space, which will help rents stabilise or move higher in 2023.

We anticipate national office vacancy will sit between 12-14pc this year.

A limited supply of new space in Sydney should see its vacancy rate cushioned this year, agency’s Antonia Foweraker said.

Occupancy rates are expected to continue to tighten in Brisbane, which has no stock additions this year, Billy Miller, head of Office Leasing, Brisbane, added.

“Like the first half of 2022 we continued to see a flight to quality, with demand for premium space still strong, placing downward pressure on available premium space,” according to the executive.

“With continuing low unemployment rates, the war for talent remains and employers are looking for ways to retain staff.

“A flight to quality provides this, if they can find space, with higher quality fit-outs and more amenity providing incentives for employees to, first, come back into the office, second, remain with their employer or third, sign with a new employer”.

Flocking to town

In Melbourne, Clemenger last February quit its long time St Kilda Road headquarters to anchor the office component of Newmark Capital’s redevelopment of the ex-David Jones Menswear store, in the Bourke St Mall.

Also since the city came out of lockdown, Rodd & Gunn relocated its offices, from High St, Prahran, to Manchester House, in the CBD.

In December, mid-size IT group Gemba leased within the historic Carlow House, at the south east corner of Elizabeth Street and Little Collins Street – also vacating High St, Prahran.

This week, Allianz leased 6500 square metres within Charter Hall and GIC’s 555 Collins Street, replacing Enterprize House.

The insurer will join Amazon and Aware Super which also recently singed rental agreements at that proposed carbon neutral building.

CBRE’s head of Office Leasing, Mark Curtain, said demand for offices is increasing nationwide.

“The national office market has defied the negative sentiment that surrounded the office sector over the past 12 months, delivering exceptionally strong transactional activity in Q4, 2022,” he added.

“CBRE recorded a total of 210,000 sqm of transactions over 1000 sqm during this period, a significant increase over the previous year (157,000 sqm),” according to the executive.

“While there is little doubt flexible working will remain a key long term trend across the globe, corporate occupiers are acutely focused on securing best-in-class office solutions that will deliver a diverse offering of workplace settings and amenities to encourage their employees to return to work.

“Rental growth returned to the market throughout 2022.

“Face rental growth supported by a stabilization in incentives has delivered an average of five per cent effective rental growth across Australia’s capital cities.

“In Perth and Brisbane, double digit effective rental growth was recorded at 10pc and 11pc respectively.

“While incentives are still a factor, face rental growth has been notably strong in many of Australia’s trophy commercial towers with flight-to-quality remaining a key market driver.

“Development rents are also trending higher as a result of strong demand for new products, increasing tenant requirements around ESG, building services and amenities, and feasibility input pressures such as construction costs.

“Looking forward to 2023, the Australian CBD vacancy rate is expected to hover around 12.5pc for much of the year with new supply dropping over 40pc from the previous year”.

Melbourne is set for 200,000 sqm of new supply over the next 24 months.

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A snap edict by the Chinese government forcing university students to return to face-to-face learning in their country of study will put further pressure on the already tight purpose-built student accommodation (PBSA) sector, according to the Student Accommodation Council.

A report released late last year by the Student Accommodation Council – an arm of the Property Council of Australia – showed many Australian cities were already at capacity for purpose-built  student accommodation beds, with Brisbane, Perth and Adelaide expecting zero vacancy rates in 2023, well before the Chinese government’s announcement.

Executive Director of the Student Accommodation Council Torie Brown said the 2022 data showed Chinese students (making up 27 per cent of all residents) and domestic Australian students (26pc) were the biggest two cohorts living in purpose-built student accommodation, together accounting for more than half all residents in PBSA.

“With students scrambling to return earlier than expected, we will see student accommodation full in many markets – which will put pressure on already tight rental markets as students look elsewhere for places to live,” Ms Brown said.

“Data released by Savills showed the supply pipeline for purpose-built student accommodation beds is muted for the next two years – with 100pc of the new beds coming online in 2024 located in Sydney and Melbourne (continues below).

“Governments at all levels need to prioritise the development of new student accommodation because it provides appropriate housing exclusively for students and stops them competing with mums and dads in the rental market.

“Expedited planning approvals, removing taxes like foreign investor fees and planning systems that prioritise student accommodation close to places of study should all be a top priority for policy makers,” she said.

For a copy of the report, contact author Torie Brown at tbrown@propertycouncil.com.au.

Students living in purpose-built student accommodation (PBSA) spend almost as much per month as the average Australian, according to a new report by the Student Accommodation Council.

The first-of-its-kind report also reveals more Australian students are living in PBSA than ever before, with domestic students making up almost a quarter of all PBSA residents (26 per cent), almost the same number as international students from China (27pc).

The fresh data, produced in partnership with Accenture, reveals the average PBSA student spends $4,400 per month not including tuition, while the average Australian spends $4,600, which also covers any children and dependants.

The Student Accommodation Council’s Executive Director Torie Brown said the report showcases the crucial contribution the student accommodation sector makes to the Australian economy.

“This report shows that students living in purpose-built student accommodation (PBSA) are good spenders, and importantly, they’re spending it in our recovering CBDs where PBSA sites are located,” Ms Brown said.

“While an office worker may only buy a sandwich and a cup of coffee when they are in the office three days a week, residents in PBSA are spending the same amount on food, beverage and recreation as the average Australian – and they are doing so 24 hours a day entirely in our CBDs,” she said.

The report, released [this week] at the Property Council’s What’s Next for Student Accommodation event in Sydney, also highlights the vital role PBSA plays in housing Australian students, who now make up a quarter of all students living in private sector purpose-built accommodation.

“There’s clearly been a shift amongst domestic students who are now turning to PBSA because of extremely tight residential rental markets, and the superior offering of PBSA that is customised to their needs,” Ms Brown said.

“What’s clear in this report is the vital role PBSA plays in releasing pressure on the housing market, because students living in these buildings aren’t competing with mums and dads for private rentals.

“Without PBSA, we would have tens of thousands more people hunting for rentals in an already tight rental market, which would drive prices to even more unaffordable levels,” she said (item continues below).

The report provides an in-depth analysis of the private PBSA sector in Australia which comprises 200 PBSA developments around the country, housing more than 76,000 students every year – not including university colleges.

Education is Australia’s fourth largest export (behind Iron ore, coal and gas) valued at almost $40 billion prior to the pandemic, and International Education is the country’s largest services export.

“The last thing we want is our housing supply or rental market crisis to become a handbrake on our education sector because we have nowhere for prospective students to live,” Ms Brown said.

“The report shows PBSA buildings are already at capacity in most Australian cities, and we are yet to see all our international students return.

“Right now, governments need to be looking at how they can remove the barriers to investment in this asset class – like cutting foreign investor taxes – to ensure we have enough beds to service growing demand including from domestic students and avoid placing greater pressure on an already-tight rental market.

“International investors are the main providers of capital for PBSA developments, and this report shines a light on the millions of dollars in fees and taxes those investors face, before investing here.

“It’s important that we have a strong pipeline of new PBSA assets in Australia to ensure our vital international education sector can continue to grow, and our CBDs are given a leg-up in their recovery.

“PBSA-based students are a vital economic engine for our CBDs, making up the shortfall in spending by office workers who are now spending more time working from home or in hybrid roles,” she said.

For a copy of the report, contact Torie Brown (tbrown@propertycouncil.com.au) or Rhys Prka (rprka@propertycouncil.com.au).