Permanent withdrawals of office stock across major East Coast CBD and Fringe markets of Sydney, Melbourne and Brisbane will accelerate by 41 per cent in 2015 and then peak a further 48 per cent higher in 2016, according to Knight Frank’s latest research.
The research report, titled Permanent Office Stock Withdrawals: Development Market Insight, July 2015, has found that the major East Coast CBD and Fringe markets will see 513,610 square metres of office stock permanently withdrawn between 2015 and 2018. There is also a further 296,292 square metres of potential withdrawal identified.
According to Knight Frank’s Head of Research for Australia, Matt Whitby, the major driver for the change of use of office stock has been the upswing in residential investment demand and the associated clamour for development sites.
Across Sydney, Melbourne and Brisbane, 47 per cent of the stock withdrawn across CBD and Fringe markets is for a change of use to residential, with a further 26 per cent slated for a likely residential / hotel development and 7 per cent with pure hotel proposals.
“Hotel development, student accommodation, education use, and the creation of development sites for new office projects have also been a factor in a number of withdrawals.”
Mr Whitby said the withdrawals will cross a mix of markets. “Conversion of office buildings accounts for 32 per cent of withdrawals. The remaining 68 per cent are to be demolished for redevelopment. Residential and hotel developments are the dominant uses, at 80 per cent.”
The major East Coast CBD markets are expected to see the majority of withdrawal activity in comparison with the Fringe markets in the same cities. Sydney, Melbourne and Brisbane CBD markets are forecast to have 387,927 square metres of office stock permanently withdrawn between 2015 and 2018, with a further 261,235 square metres of potential withdrawal identified.
The analysis found that office withdrawals will also be prevalent in the Fringe markets covered in the report. “Sydney’s North Shore, Melbourne Fringe & Southbank and the Brisbane Fringe markets will also have strong levels of permanent withdrawals, with 125,683 square metres of space to be withdrawn between 2015 and 2018 and an additional 35,057 square metres currently identified as potential withdrawals.
“There are also stock withdrawals set to occur in the suburban office markets over the next few years, particularly in Sydney, as a result of the residential development activity. Epping, Hurstville and Burwood in particular have significant withdrawals pending and the displaced tenants will positively impact traditional office precincts such as Parramatta and other business park locations”, said Mr Whitby.
According to Knight Frank’s Senior Director of Research for Queensland, Jennelle Wilson, the withdrawal of secondary CBD office stock is expected to have a cushioning effect against relatively high supply levels, particularly in Sydney and Brisbane.
“The Sydney and Brisbane CBDs permanent withdrawals over the next four years accounts for 4.3% and 4.7% of stock, against new construction of 8.2% and 8.6% respectively. In Sydney, there is even more stock slated for permanent withdrawal post 2018, than there is over the next four years, so the cushioning impact will continue until the end of the decade.
“In Brisbane, the majority of the CBD stock withdrawal is currently expected to occur over the next 18 months. This is predominantly tied to the demolition of older State Government-owned buildings to create the Queens Wharf development site, with the successful bidder, Echo Entertainment, announced today.
“The increased prevalence of withdrawal of stock in Brisbane’s commercial markets has emerged due to softer commercial leasing market conditions, combined with improved sentiment and demand across residential, hotel and student accommodation.” said Ms Wilson.