Tenants willing to shift from the suburbs to the city are emerging as rare winners in Perth’s patchy commercial property market.
Advertising agency 303MullenLowe will shift from Subiaco to the city next month, having signed a five-year lease at the Primewest-owned 1 Forrest Place.
The deal, brokered by Sheffield Property Group, covers 660 square metres on the second floor of the heritage-listed building, joining architecture firm Hassell as an anchor tenant.
While the ad agency’s managing director of strategy and innovation, Derry Simpson, would not be drawn on specifics of what 303MullenLowe would pay for the space, she did say there was a substantial saving on what the firm paid for its former Subiaco premises.
The office fit-out was also included in the deal as an incentive.
Ms. Simpson said 303MullenLowe did not consider any other suburban location during its search, instead wanting to be close to the majority of its clients, as well as the vibrancy and life on offer in the CBD or Northbridge.
“Our agenda originally was Northbridge or somewhere around the arts and culture precinct,” Ms. Simpson told Business News. “We’ve got 60 people in here, all highly creative individuals who benefit from being in a creative space and having creative businesses around them, and Subi is just not that now.”
Ms. Simpson said 1 Forrest Place gave 303MullenLowe a building that would reflect the kind of business the agency wanted to be.
“Finding a place like that, which is going to make people really excited to come to work and be really proud of the space, was important and I think we’ve achieved that,” she said.
Sheffield Property director Mark Clapham said 303MullenLowe was one of many in the advertising and marketing space making or contemplating similar moves, driven by lower rental values and considerable incentives to relocate.
“What the change in the market has allowed them to do is consider the CBD as a serious alternative to being located out in the suburb,” he said.
“There actually seems to be a bit of a trend emerging with advertising agencies and marketing companies taking a serious look at the CBD as a location.”
Research by commercial agency Savills and the Property Council of Australia put the amount of vacant office space in the CBD at the start of the year at 1.7 million square metres, but Mr. Clapham said a desire for many creative firms to be housed in heritage buildings meant finding a suitable building was something of a challenge.
He said 303MullenLowe examined a number of options around King and Queen streets before deciding to commit to 1 Forrest Place.
“There are a number of heritage buildings around, but generally the level of building services supporting the office space is questionable and it’s not always easy to find larger heritage spaces,” Mr. Clapham said.
“When you go through the buildings on King Street, while they are beautiful, they are all older and smaller.
“If you are looking for space over 500 square metres, the market narrows quite significantly when you’re looking for heritage, and it gets even narrower again when you are looking for quality services and a quality landlord sitting behind it.”
While Mr. Clapham reported interest from advertising and marketing groups, a mass exodus of suburban tenants to the CBD has not yet occurred, according to the latest Sub- urban Office Report by Y Research.
During the past six months, Brookfield Multiplex, Probuild, and Frasers Property Australia are the sole major tenants to relocate from suburban markets, Y Research chief problem solver Damian Stone said.
“With the peak of the CBD vacancy looming in the latter half of 2016, and given the leasing incentives and the quality of buildings and contiguous spaces available, it is likely that tenant relocations to the CBD will accelerate across 2016,” Mr. Stone told Business News.
However, director of tenant advocacy group Acorpp, Justin Boelen, was not convinced that the vacancies in the CBD would all be filled with suburban tenants, even considering the cheap rents and incentives on offer.
Mr. Boelen said many suburban tenants were in the suburbs for a specific reason, whether that was to be close to their core business activities or simply for car parking flexibility.
“It’s cheaper for people to stay in the city now, but most clients who are CBD fringe or suburban typically don’t want to move to the CBD,” he said.
Nevertheless, Mr. Boelen acknowledged the deals on offer in the CBD would likely be enticing, largely because it would be difficult for many suburban office landlords to match the offers.
“In the CBD, because they are all massive companies and superannuation funds that own these buildings, they are diversified over a massive portfolio,” Mr. Boelen said.
“They can say ‘ok we’re getting a haircut over here but we can get it back here’ and it all comes out in the wash.
Yet if you come out to some suburban places where it is a mum and dad or three or four businesses that have a syndicate, they can’t afford the base rent to fall as much, they can’t afford to give the incentive and they are definitely not giving contributions towards the fit-out at the same magnitude as owners are in the city.”