STATE MOVE MAY SPARK SUBURBAN OFFICE SHIFT – 10 June 2010

Dan Wilkie – WA Business News
10 June 2010
https://www.businessnews.com.au/article/State-move-may-spark-suburban-office-shift

THE state government’s plan to relocate up to 20 per cent of its CBD office tenancies to suburban centres could act as the catalyst to kick-start new office developments outside of the city centre.

The government released details of its CBD and suburban office accommodation plans last month when it announced it had signed a 15-year lease for over 13,000 square metres of new office accommodation in the 4-star green-star rated Optima Centre building B.

Two divisions within the Department of Treasury and Finance and the new Department of Training and Workforce Development will relocate to the PACT construction-built Optima Centre, in Herdsman Business Park, by early 2011.

Sheffield Capital director of project leasing Digby Sutherland, who brokered the deal for Optima Centre developer ABN Group, said the move would set in motion feasibility studies for new suburban office developments.

According to Mr Sutherland, Perth’s non-CBD office market is developing into a key sector as it evolves from mainly industrial uses to business precincts.

“Now companies have the choice, they can lease a CBD-quality office building, but in the suburbs,” Mr Sutherland said.

“Developers are getting a lot smarter as well. They’ve seen what has been best practice on the east coast for developing suburban office buildings, and now the economics stack up over here, they can take the best of office design from the east and develop it here.”

Mr Sutherland said the momentum created by the government’s move to Herdsman had already boosted the construction of at least one major development in the suburb.

Rapley Wilkinson, developer of A-Grade Herdsman Business Park office building Parkland Rise, has relaunched marketing for the project, which stalled in 2008 during the trough of the global downturn.

Mr Sutherland said the $34 million 4,800sqm office development was 50 per cent complete and could be ready for occupation in less than 12 months.

“This timeframe fits perfectly with well-organised large corporate tenants that review their office accommodation requirements at least 18 months prior to lease expiry,” Mr Sutherland told WA Business News.

In other current suburban office construction, QUBE Property Group has begun building a $28 million office development at Subi Centro.

QUBE director James Collis said the three-storey 3,736sqm development would give a major boost of confidence to the Subiaco office market.

“This major office development will soon become a reality because we were able to secure finance based upon our strong reputation within the finance sector while at the same time quickly expedite all the necessary approvals processes,” Mr Collis said.

“Currently, we have leased all but 1,200sqm of the development and are confident the remaining vacant space will be leased quickly.”

QUBE has secured Amex Corporation, NS Projects, Strathearn Insurance Brokers and the Meyer Shircore Group as tenants.

Also in Subiaco, Northerly Group and Amana Living will officially open their 5-star green-star rated three-storey development, ECO 541, this week.

Savills WA head of research Helen Swanson said the developments were classic examples of the evolving nature of Perth’s suburban office market.

Savills recently closed expressions of interest for the sale of a three-storey, 1,982sqm office building at 27 Walters Drive, Osborne Park.

“Perth’s suburban office market is experiencing significant growth in rentals as a result of the resources boom and suburbs such as Osborne Park and Subiaco are subsequently becoming more popular due to their proximity to the CBD and relatively cheaper rentals,” Ms Swanson said.

“This is also evidenced by the numerous new office developments that have occurred or are planned in the area.” Another planned office development is BGC’s 11-storey tower, expected to be built at 3 Hasler Road.

BGC has recognised demand in the area since completing another large Herdsman office block in early 2008, leasing two floors to John Holland and three floors to the WA Health Department.

Property Council of Australia executive director Joe Lenzo confirmed demand for suburban office developments was increasing,

He said before the financial crisis hit, CBD office vacancy rates dipped to virtually zero and a significant number of suburban office development applications were lodged.

“However, due to the GFC, a big percentage of those were either put on hold or relinquished altogether, so we didn’t have what we thought a few years back would be fairly substantive suburban office development taking place,” Mr Lenzo said.

He said developers would be revisiting those plans in the wake of the government’s proposed move to Herdsman.

“At the moment the suburban office stock is quite limited, however the announcement the state government has made could be an impetus for some new developments, especially for those that have got the potential to put up a building in the state government’s new activity centres policy, nominated under (state planning framework) Directions 2031,” Mr Lenzo said.

“Areas where you’ve got transport like central Stirling, areas in Belmont, areas in that southern corridor like Murdoch and Jandakot, there would be potential there.

“I think the government is using this also as an impetus to try and get their activity centres actually working, in other words they will be looking to move in the so called-designated activity centres.”

Mr Sutherland identified business parks in Herdsman, Victoria Park, Belmont, Jandakot and Fremantle as the most viable emerging office markets, alongside established suburban office enclaves at Subiaco and West Perth.

The Property Council’s autumn office markets forecast showed gross face rents for prime office buildings in Belmont, Herdsman, Subiaco and West Perth in January this year averaged $536/sqm. This compares to average gross face rents in prime CBD buildings of $840/sqm.

But Mr Sutherland said developers should be mindful a suburban office development had to provide the same level of amenity and functionality as a CBD office building, even with a reduced rent.

“There is a difference between what has traditionally been constructed in the suburbs in terms of quality and design and the new benchmark buildings that are going to have to be designed to attract the government and the large corporates into the future,” he said.

“Optima is the benchmark in that regard, so there might be plenty of interest from developers on sites, but the site has got to be in the right location, next to public transport, the design is going to have to be a benchmark design, and the developer has to have credibility.”

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