The world is in a constant state of transition. After overcoming a pandemic, new conflicts and crises are the driving force for change. In Australia, this has led to a focus on light industrial and logistics properties as well as top quality offices in good locations.
Currently, the office property markets are undergoing a remarkable transformation where companies’ ability to provide a more conducive work environment focused on wellbeing and flexible work arrangements is becoming increasingly important. There is a clear preference for “flight-to-quality” wherever budgets or market opportunities allow. Besides location, the emphasis for connectivity and accessibility, abundance of amenities and environs for collaboration and innovation are also determining factors for companies’ choice of office locations. A sound investment decision will require finger-on-the-pulse local knowledge and on-the-ground professionals who can evaluate properties in these new lights and truly understand the nuances and opportunities of both established business districts and emerging areas which will benefit from substantial committed infrastructure investments.
Office real estate - quality is key
A strong labour market and the pandemic acceleration of hybrid forms of work are intensifying the demand for quality space.
Above all, offices with high-quality furnishings are in demand to get home-office-used employees back into the office. In addition to flexible office concepts and digital connectivity, comfortably designed common spaces are needed to promote teamwork. A recent market study underscores this trend, stating that around 70% of leases in CBD markets in 2022 were signed with tenants who opted for prime office space. "Good locations will become even more important in the future. We are therefore focusing on how we can design well-located buildings to allow the tenant to make the best possible use of them. In addition to contemporary amenities, this also includes making lease terms more flexible," explains Simon Purdy, AM ALPHA’s Country Manager in Australia.
Certification is a must-have
There is no question that sustainability is one of the central topics in the society's discussion today. Companies that do not align themselves with the new standards run the risk of being left behind in the competition. This is because they are not only under public pressure to fulfil their net-zero obligations but also have to meet the expectations of their employees, who are increasingly thinking more ecologically.
There are also concrete advantages for companies to invest in sustainable real estate. They offer the investor security against future ecological regulations and ensure adequate returns in the long term, as they are equally attractive for users and investors.
In Australia, amongst others, there is the national rating system NABERS which is mandatory for all office buildings with more than 1,000 square metres of space. According to an analysis, 74% of all office properties in Australia are certified accordingly by 2021. About half of all office buildings received five out of a maximum of six possible stars, thus rated "excellent".
"This result demonstrates Australia's commitment and dedication to leading the way in sustainable architecture“, says Simon Purdy.
Growth market: light industrial and logistics properties
Logistics as well as light industrial properties, which have offices and smaller manufacturing spaces in addition to warehouse and logistics space, have been on a growth trajectory in Australia for years. Particularly in recent years, the average share of online retail in total retail has almost tripled from 4.2% in 2017 to 11.2% in 2021. This e-commerce boom, accelerated by the pandemic, has led to companies demanding significantly more logistics space on the one hand, and more warehouses close to the city centre on the other, in order to secure their delivery capacity.
New dynamics through near and on-shoring
This development is reinforced by the emerging deglobalisation in the wake of the new geopolitical conflicts. It is becoming apparent that supply chains are more vulnerable the more complex and ramified they are. In other words, nearshoring and onshoring is currently a dynamic trend in Australia with significant implications for the light industrial asset class. However, it is not only local production capacities that are being increased; the demand for logistics properties and, of course, administrative and office buildings is also growing. This development is additionally fuelled by subsidies granted by the Australian government for the construction or expansion of domestic production facilities.
This high demand for light industrial, combined with a severe lack of new supply, has resulted in vacancy rates falling to long-term lows. This in turn has driven rents up: Colliers recently reported a 21.6% increase in weighted national prime rents for light industrial space in the 12 months to the end of 2022. "As AM ALPHA, we have our eye on this sector," says Simon Purdy. "Because of the ongoing mismatch between supply and demand, light industrial and logistics properties are low risk at the moment. They have all the more return potential when the end of interest rate hikes will be reached."
