Metro markets: the quiet achievers

All in various stages of the property cycle, the sub-markets within cities around the country all tell a different story, from CBD to metro to suburban. We spoke to two of our top metro agents – Shane van Beest, Partner, Office Leasing, Queensland and James Treloar, Director, Head of Metropolitan Leasing, Victoria – about how their markets are performing and insights we can draw from the Brisbane and Melbourne metro office markets.

2018 has been a solid year for the Brisbane metro office leasing market, according to Shane, with the level of enquiry and volume of transactions significantly exceeding the levels seen in 2017.

“We are currently experiencing a growth sentiment in Brisbane, and this has been reflected in the number of enquiries where occupants are looking to expand on the space they currently have. This is a stark contrast to where the market was three or four years ago, when we were predominantly sub-letting space as companies were downsizing or looking to relocate to save money.

“The rejuvenated and positive interest from tenants has resulted in growth in face rents, which were reasonably static in 2016 and 2017, increasing 4% in the year to June 2018. Effective rents have also started to grow gradually as the market has hit a ceiling in terms of incentive levels.”

The Melbourne metro market has also been performing strongly with historically low vacancy of 4.6%, as at June 2018, and a lack of supply leading to rents increasing 3.7% in the six months to July 2018, said James.

“A lot of the activity in the Melbourne metro market has been in the Richmond and Cremorne area. These areas are attracting a variety of tenants, from tech to co-working, with a number of developments fully pre-committed. Occupiers are looking to the metro markets for space that provides a good value alternative, relative to the CBD, while also offering superior amenities, facilities and connectivity.

“There is significant development activity underway in the Melbourne metro market as there is a window of opportunity where speculative commercial developments are a very viable option due to the low vacancy and increased rents, for example 588 Swan Street, Richmond.

While Brisbane’s metro market may not have the same amount of stock as Melbourne coming to the market in the next year or two, tenants are still looking for upgraded space. Shane believes the best advice he could give landlords is to invest in your assets during a downturn in the market.

“Similar to Melbourne, companies are always looking to upgrade their space no matter what stage of the cycle. No tenant ever says ‘we want something worse than what we currently have’. They are typically looking to upgrade for the same cost, or less, so it is important to stand out and distinguish your building when there is a saturated market.”

One stark difference between the two markets is what draws companies to the metro areas.

For Melbourne, it is very much about the amenities in the area, attracting occupiers such as tech and creative businesses.

While in Brisbane companies are typically drawn to the value, size of the floorplates and the price of parking relative to the CBD, so tenants tend to be more transient style workforces such as engineering firms, mining consultants and construction groups that benefit from the extra car parking.

However, the cities are alike in that there are small pocket-sized neighbourhoods currently attracting a significant amount of interest from occupiers.

James says, “Cremorne, in the Richmond precinct, is very popular with tenants as we are seeing companies take into consideration where their employees want to be. Cremorne offers modern space with great connectivity to the CBD all within close proximity to some of the best restaurants, bars and cafes in Melbourne.

“Recently MYOB leased circa 8,800 sqm in the area, while both 7/11 and Recce Plumbing let 7,000 and 7,800 sqm respectively, highlighting Cremorne’s attraction for a variety of tenants.”

Milton has been the surprise performer in Brisbane, according to Shane. “Despite the relatively dire market perception of Milton due to the high vacancy rate, the suburb has been attracting a substantial amount of interest from tenants looking for quality and value.

“We were involved in the leasing of 135 Coronation Drive in Milton earlier this year, which had over 13,000 sqm of A-Grade space available following Origin Energy relocating to the CBD. The space was fully let within three months of Origin vacating, including a major commitment from Downer EDI Services and two or three occupiers that unfortunately missed out on securing space within the building.

“There has also been an uptick in activity in Milton’s B-Grade sector, with tenants such as Open Gear, Corporate House and ARN all securing deals in the past three months.”

As the popularity of the near city metro markets continue to increase, both Shane and James expect the outer suburban markets will experience a rise in popularity.

“With the market tightening and rents climbing, we expect that large tenants will start to look to outer suburban areas such as Melbourne’s Clayton in the east and Essendon Fields in the north for comparatively affordable options,” commented James.

Across the board in both cities, the bar for how landlords should market their assets has been raised in recent years.

“We have certainly experienced a shift away from the traditional signboard and internet listing as it is all about showcasing the building to set the scene for a tenant and make a lasting impression with key decision makers.

“One way a landlord can differentiate their building is through the use of high calibre marketing materials, including professional promotional videos, photography or CGIs, and superior brochures or information memorandums,” said James.

Despite the differences between the metro and CBD markets in Melbourne and Brisbane, both Shane and James agree that the role of the agent doesn’t vary drastically between the two.

“While we may work with a slightly different type of landlord and occupier, at the end of the day, we all need to hustle and work in partnership with our clients to the best of our ability.

“In fact, James and I have been collaborating recently on a Metro Tenant Strategy which has us tracking major metro occupiers across the eastern seaboard,” Shane concluded.