Workplace strategy to shape office and retail markets of the future
Workplace strategy to shape office and retail markets of the future
17 May 2016
Perth, 18 May 2016 – Perth’s office and retail landlords need to increase their focus on workplace strategy as the state continues to transition away from its mining base, according to CBRE’s latest economic forecasts.
Speaking at the firm’s inaugural Perth Market Outlook event, CBRE Head of Research, Australia, Stephen McNabb said attraction and retention of tenants/customers would emerge as a key theme over the next 18 months.
“Until we see some stability enter the Perth market in 2017, occupiers will be looking for opportunities to improve business performance through workplace strategy and manage future real estate costs through leasing structure, office upgrades and relocating,” Mr McNabb said.
“While there will be an ongoing focus on cost savings in the office and retail sectors, landlords need to look more strategically at using real estate to retain and attract tenants.”
A more dynamic mix of food and beverage was also highlighted as a key trend emerging in the retail sector, with increasing focus on the need to diversify shopping centres.
“Looking at the bigger picture across Australia, demographic preferences are shifting to strengthen demand for food & beverage, as well as foreign brands, and these will be a larger part of the retail mix going forward,” Mr McNabb explained.
CBRE Asia Pacific Head of Research, Henry Chin, said Asian capital would continue to target key Australian markets, with an emerging trend to look beyond the main gateway cities of Melbourne and Sydney.
“Traditionally, Asian investors only want to buy A-grade buildings in major gateway cities such as London, Sydney and Melbourne, but they’re starting to move away from these locations as they become more adventurous,” Mr Chin said.
In 2015, outbound investment from Asian institutional investors totalled US$63 billion – with the majority of this flowing to the US, followed by Western Europe.
Pacific attracted US$8.1 billion in Asian capital, with the majority of this injected into Australian markets and reflecting 45% year on year growth.
Mr Chin said while China accounted for a large portion of Asian investment into Australia, it was only part of the story.
“It’s not all about China. The most active outbound Asian investor is actually Singapore and they want to continue deporting their capital into Australian markets,” Mr Chin explained.
“Korea is another big market to watch, as they are the most aggressive investor, with a number of insurance based investors from this region looking for development opportunities in Australia.”
The Market Outlook event included an in-depth sector by sector presentation – key points from which are summarised below.
IT and technology are emerging among the strongest growing sectors of the office market, fuelling demand for space within major CBD locations across the Asia Pacific region.
Mr Chin said, albeit a relatively small sector compared to professional services and finance, IT was an industry to watch.
“Start-ups, e-commerce companies and online gaming developers are becoming a major source of demand for office space in all CBD markets across the region,” Mr Chin said.
Mr McNabb said while Perth would continue to feel the impact of the mining investment downturn in the CBD market, the worst was over.
“We think that with much of the majority of the office supply now delivered, Perth’s office vacancy will peak at the end of 2016. This will bring a little more stability to the market in 2017 as the worst of the increases in vacancy are now behind us. Beyond that, we will see gradual net absorption, albeit at higher vacancy levels which will impede a return of rent growth in the next two years,” Mr McNabb said.
Mr McNabb said the possible conversion of CBD office property to residential and hotels could reduce pressure on the market – much like what has played out in Brisbane and some areas of Melbourne.
The RBA’s decision to cut interest rates earlier this month is expected help support Perth’s retail sector by putting more money into the wallets of consumers.
Further aiding the retail market, Mr McNabb said the influx of offshore retailers in Australia would continue, with brands looking to expand beyond the eastern seaboard.
“Australia has 28% saturation of the world’s top foreign retailers, with 16% in Perth and 15% Adelaide – highlighting the opportunity Australia-wide, but particularly in these markets,” Mr McNabb explained.
Increasing levels of Chinese tourism to Australia is also expected to provide a further boost to retail, with the average Chinese visitor spending around AU$6,000 per trip – almost three-to-four times that of the second biggest tourist spenders, from New Zealand and the UK.
E-commerce was highlighted as a major driver of the industrial and logistics market, with the ‘click and collect’ market gaining momentum amid growing customer demand for this type of product.
Mr McNabb said growth in e-commerce and transport & logistics would help offset the decline in manufacturing Australia-wide.
“Manufacturing has been in decline for decades, accounting for just 6 ½ % of the overall economy now and subsequent smaller part of the industrial mix,” Mr McNabb said.
“An oversupply and weak demand over the past few years has hindered growth, however, last year we saw the industrial economy start to grow again and supply in the near term is falling to below average levels, meaning that we are moving closer to the bottom of the cycle.”
In CBRE’s 2015 Investor Intentions survey, just 1% of investors indicated they would be purchasing hotel assets that year. Fast forward 12 months and that interest has jumped to 14%, with hotels now ranking as the third most sought after asset class behind office and retail.
Mr Chin said investors were increasing their focus away from traditional A-grade, premium office assets.
“Investors are becoming more adventurous, with many turning to opportunities in retail and hotel that offer compelling returns.”
Mr McNabb said Asian investors were more focused on finding the right asset as opposed to location – as demonstrated by the $400 million sale of Rundle Mall in Adelaide last year.
“There is appetite beyond Sydney and Melbourne, and Perth will continue to emerge as a counter cyclical opportunity for investment over the next couple of years,” Mr McNabb explained.
“Investors are discerning of risk, therefore Perth stands to benefit from the shift in sentiment towards counter cyclical opportunities.”
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.