Brisbane lags behind Sydney and Melbourne in the race to convert older office stock into residential or other uses, according to a new report.
In the latest edition of its Corporate Solutions Research report called The Wrap, real estate services firm Jones Lang LaSalle says residential developers Sydney and Melbourne are leading a charge to acquire well-located secondary commercial buildings for future residential development at prices well above commercial book value.
According to the report, more than $1 billion worth of commercial property has been purchased with the intention of redevelopment or conversion over the past year in Sydney alone.
It says, however, that Brisbane has lagged behind on this trend as the resource boom has kept the corporate leasing market ‘riding high’ until now, and that the city had a considerable volume of older stock built in the 1960s, 70s and 80s which had become outdated. This phenomenon has prompted debate led by the city council and state government regarding the possibility of a program of incentives to encourage conversion of older stock to alternative uses.
Furthermore, while ‘Brisbanites’ had been slower than their counterparts in Sydney or Melbourne to embrace inner city living, the existence of three major tertiary learning institutions within or near the CBD meant there was potential for conversion to student accommodation.
“While other CBDs were disposing of excess ageing stock via residential conversions or hotels, Brisbane continued to lease its commercial space and retained most stock,” JLL said in its report.
“That stock now contributes to the average age of Brisbane’s buildings rapidly approaching 30 years old and approximately 44 per cent of Brisbane’s CBD office stock being classified as B-grade, which is the highest of all major capital city markets, compared to an average of 27 per cent across all CBD markets.”
The report comes as general conditions across major capital city markets remain favourable to tenants.
In Sydney, for example, where rents are already flat and corporates such as Deutsche Bank and PwC are downsizing their space requirements, a huge volume of new space expected to come online is expected to see tenant friendly conditions persist in that market for a considerable period of time.
Melbourne, meanwhile, is seeing subdued levels of demand as major manufacturers scale back operations and their presence in that market.
Overall, JLL head of integrated portfolio services for Australia Tony Wyllie described the current market as ‘push-pull’ due to what he described as a ‘disconnect’ between investor demand for quality stock and tenant-favourable conditions in the commercial leasing market.