melbourne cbd office research forecast report second half 2012

melbourne cbd officeReseaRch & FoRecast RepoRt

www.colliers.com.au/research

Domestic & Offshore Investment Demand Remains Stronginvestment demand from both domestic and offshore institutions remained strong over the first half of 2012. The main focus from buyers has been on quality Premium and A grade assets with low vacancies and secure, long term lease covenants. despite this demand there has been a limited number of this asset type on the market for sale and this has consequently limited transaction volumes and seen yields and capital values remain stable over the period.

Six major office sale transactions totalling $629.5 million were recorded during the first half of the 2012, an increase of 10.5% when compared with the first half of 2011. The largest, non-related party sale to occur during the period was that of 150 collins Street which was purchased by GPT Wholesale office fund for $181 million on a yield of 6.77%.

The latest Property council of Australia (PcA) office market report showed that increasing supply levels are starting to affect vacancy levels across the melbourne cbd office market. The report showed that the total vacancy rate increased slightly from 5.2% in January 2012 to 5.6% in July 2012. The key driver behind this rise was the fact that supply outstripped tenant demand during the period. despite this increase, the vacancy rate still remains significantly lower than the long term average (6.7%) and is the second tightest cbd office market nationally.

The rising vacancy rate has had limited impact on pre-commitment activity with two deals announced during the first half of 2012. The largest of these was medibank who committed to a 12 year lease covering 30,000m² at 720 bourke Street, docklands. The second was Victoria Police who committed to 28,500m² at city West Police complex, 313 Spencer Street.

The first half of 2012 saw a total of 55,868m² of supply added to the market. The largest of these was the completion of 735 collins Street, docklands which added 42,000m² of A Grade space into the market and is now 100% occupied by the Australian Tax office. There is approximately 277,000m² of new space set to enter the market over the next two years, the majority (74%) of which is pre-committed. However, there is concern regarding the amount of back fill and sub-lease space which will result from the movement of pre-commitment tenants and the contraction of business due to the current economic environment and conditions moving forward.

SECOND HALF 2012 | OFFiCE

171 Collins Street, Melbourne

Key highlights

• The overall vacancy rate within the melbourne cbd office market increased from 5.2% to 5.6%

• Yields and capital values remained stable • Six major office sales transactions totalling

$629.5 million were recorded YTd 2012

MaRKet indicatoRs FoRecast - 6 Months

oveRall peRFoRMance

neW sUpply

tenant deMand

vacancy

incentives

Face Rents

eFFective Rents

capital valUes

yields

MelBoURne cBd oFFice MaRKet indicatoRs

gradeaverage net Face Rents ($/m2 pa)

average incentives

average outgoings ($/m2 pa)

average capital values ($/m2 pa)

average Market yield*

loW high loW high loW high loW high

premium $480 $665 18% 25% $131 $6,000 $7,000 6.50% 7.00%

a grade $392 $457 20% 25% $107 $4,500 $5,750 7.00% 7.75%

B grade $317 $349 21% 25% $93 $3,000 $4,250 8.00% 9.00%

* equivalent reversionary Yielddata correct as at Q2 2012 Source: colliers international research

Economic UpdatestRong Q1 2012 gdp ResUltThe march Quarter 2012 Australian bureau of Statistics (AbS) Gross domestic Product (GdP) data showed strong growth for the Australian economy during the quarter. in seasonally adjusted terms, GdP increased 1.3% during Q1 2012, up from 0.6% in Q4 2011, taking through-the-year GdP growth to a strong 4.3%, the largest annual result since September 2007. The main contributors to expenditure on GdP, during the quarter, were household final consumption (0.9 percentage points) and private gross fixed capital formation (0.8 percentage points) while net exports detracted 0.5 percentage points. The main industry contributors to GdP were mining (up 2.3%), financial and insurance services (up 1.7%) and Professional, scientific and technical services (up 2.8%).

eMployMent ReMains tightThe July 2012 monthly AbS labour force data shows that the Australia employment market continues to remain tight. The latest results showed that the unemployment rate declined by 0.1 percentage point from a revised, 5.3% in June to 5.2% in July 2012. This saw total employment increase by 14,000 persons with both full-time employment increasing by 9,200 persons and part-time employment growing by 4,800 persons, during the month.

inFlation Rate ReMains loWThe latest inflation data from the AbS shows that annual headline inflation rose just 1.2% during the 12 months to June 2012, down compared with a rise of 1.6% through the year to march 2012. This saw the consumer Price index (cPi) grow by 0.5% during the quarter and ensures that the inflation rate remains well below the rbA’s target range of 2% to 3%.

cash Rate ReMains staBlefollowing a reduction of 50 and 25 basis points in may and June 2012 respectively, the reserve bank of Australia (rbA) decided to keep the official cash rate stable at 3.50%, during both their July and August monthly board meetings. According to rbA, we can expect inflation to be consistent with target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate”.

aUstRalian dollaR soFtensongoing uncertainty over european sovereign debt issues has continued to fuel concerns regarding the global economic outlook. combined with the slow pace of economic recovery in the united States, this uncertainty saw the Australian dollar reach a record high in late July 2011, trading at $uS110.62 cents, before slipping below parity in december 2011. After regaining value during Q1 2012, trading as high as $uS1.08, the Australian dollar fell below parity in may 2102 due to a flight by investors to safe haven assets as election results in Greece and france further clouded the outlook for the european economy. This strong Aud is one factor affecting lower GSP (Gross State Product) growth in Victoria due to its impact on state’s manufacturing sector.

MelBoURne cBd net aBsoRption v White collaR eMployMent gRoWth

Net A

bsor

ptio

n -

m2

Whi

te C

olla

r Em

ploy

men

t (6

mth

% C

hang

e)

6 Mth Net Absorption Melbourne CBD White Collar Employment

4.0%

5.0%

3.0%

2.0%

1.0%

-0%

-1.0%

-2.0%

-3.0%

-4.0%

Forecast

100,000

50,000

- 50,000

0

200,000

150,000

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jul-

12

Source: deloitte Access economics / colliers international research

collieRs inteRnational | p. 2

rESEArCH & FOrECASt rEpOrt | SECOND HALF 2012 | OFFiCE | MELBOURNE CBD

1H 2008

20,000

0

10

20

30

40

50

60

70

80

90

100

40,000

60,000

80,000

100,000

120,000

2H 2008 1H 2009 2H 2009 1H 2010 2H 2010 1H 2011 2H 2011 1H 20110

Num

ber

of L

ease

s Si

gned

O ce

Are

a (s

q m

)

Number of LeasesTotal Area of Leases Signed

Employment Trend and Leasing Demand

White collaR eMployMent soFtens•Total white collar employment in the

melbourne cbd increased by 904 people (0.3%) in the first half of 2012; significantly lower than the 10 year average of 1.61% growth per six months.

•The Professional, Scientific and Technical Services sector which accounts for 20% of melbourne cbd’s work force increased by 3,716 people (7.3%). over the next three year this sector is expected to add 10,529 jobs, more than half of total job additions (17,561) in the cbd.

•The finance and insurance sector saw negative white collar employment growth in the cbd with 1,918 jobs cuts (-3.6%). While information, media and Telecommunications employment also declined by 259 jobs (-1.1%).

•looking forward, deloitte Access economics forecasts white collar employment will increase by 3,160 people growing by 1.2% for the remainder of the year. equating to an additional 47,000m² of office space requirements over the next six months.

total leased aRea Rises•despite subdued lease transaction volumes

and enquiry levels the total area of leases signed increased by 51% during the first half of 2012 as compared with the second half of 2011.

•This saw approximately 45 leases signed during the period representing circa 60,000m². This saw the average lease size also increase from 650m² in the second half of 2011 to 693m² over the first half of 2012.

•Although demand has softened in the mid-market but deals are still happening in well positioned and well-presented assets. While options that provide quality fit-outs requiring minimal adjustment also leased well.

-3,000 -2,000 -1,000 0 1,000 2,000 4,000

Electricity, Gas, Water and Waste Services

Rental, Hiring and Real Estate Services

Professional, Scienti�c and Technical Services

Accommodation and Food Services

Manufacturing

Public Administration and Safety

Wholesale Trade

Retail Trade

Overall

Administrative and Support Services

Information Media and Telecommunications

Education and Training

Health Care and Social AssistanceOther Services

Agriculture and Mining

Construction

Financial and Insurance Services

Transport, Postal and Warehousing

Arts and Recreation Services

3,000

MelBoURne cBd FoRecast White collaR eMployMent gRoWth

Source: deloitte Access economics / colliers international research

Source: colliers international research

MelBoURne cBd oFFice lease tRansactions



Supply

Lantern, 707 Collins Street, Docklands

•A total of 55,868m² of new supply entered the melbourne cbd market during the first half of 2012, accounting for 16% of new supply additions across all Australian cbd office markets during this period. The completed buildings were:

- 735 collins Street, docklands: A Grade building of 42,000m² which is now 100% occupied by the Australian Taxation office;

- 990 laTrobe Street: A Grade building of 13,000m² which is 100% occupied by melbourne Water.

•The second half of 2012 is set to see 80,481m² of new supply added to the market with approximately 56% (45,319m²) pre-committed. The buildings to be completed in this time are:

- 357 collins Street: A Grade building of 30,364m² with 70% of the building already leased;

- Goods Shed South with Pearson Publishing having pre-committed, leaving approximately 1,800m² remaining available from a total of 9,200m² building;

- 555 bourke Street refurbishment with Holding redlich having pre-committed 6,000m², leaving 14,172m² remaining available from a total of 20,172m² building;

- 850 collins Street with 62% pre-committed by Aurecon, leaving 6,570m² remaining available of a total of 17,245m² building; and

- lantern building (707 collins Street) offering 3,500m² of office space.

•in addition to new / refurbished supply additions colliers international has identified approximately 48,000m² of backfill space to enter the market during the second half of 2012. Approximately 36,000m² of this backfill space will be added in the eastern core precinct.

•in 2013, three new buildings totalling 134,000m² are expected to be completed, with approximately 80% (106,943m²) currently pre-committed leaving 27,057m² remaining. The buildings to be completed in this time are:

- 700 bourke Street: A Grade building of 63,000m² is 100% pre-committed by nAb;

- 171 collins Street: first new Premium Grade office building in 20 years with approximately 29,000m² is currently 47% pre-committed by bHP billiton and evans & Partners.

- 735 collins Street with mercer and commonwealth bank of Australia having pre-committed, leaving approximately 4,600m² remaining available from a total of 42,000m².

•during 2013, colliers international has identified approximately 43,000m² of backfill / sublease space to enter the market.

•in 2014, two new buildings totalling 67,000m² are expected to be completed, with approximately 66% (44,000m²) currently pre-committed leaving 23,000m² remaining. The buildings to be completed in this time are:

- 150 collins Street with Westpac pre-committed for 14,000m², leaving 6,000m² remaining available; and

- 720 bourke Street with medibank having pre-committed for 30,000m², leaving 17,000m² available from a total of 47,000m².

•during 2014, approximately 101,500m² of backfill space is expected to enter the melbourne cbd market.

•The current low levels of business confidence are expected to lead to additional sublease space entering the market the over the next 2 to 3 years. current identified major sublease space online includes AnZ’s space of 27,000m² at 55 collins Street, nAb’s 7,000m² at 180 lonsdale Street and 6,000m² at 330 collins Street of which 3,000m2 is already committed.

•There are approximately 11 mooted buildings for development representing approximately 450,000m²; however they would require significant pre-commitments for any project to enter the market.




MelBoURne cBd cURRent & Mooted coMMeRcial developMent

Net L

etta

ble

Area

(sq

m)

Remaining Area Pre-Committed Back�ll / Sublease

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

222

Exhi

bitio

n St

reet

469

LaTr

obe

Stre

et50

5 Lt

Col

lins

Stre

et30

0 La

Trob

e St

reet

90 C

ollin

s St

reet

440

Colli

ns S

tree

t33

3 Q

ueen

Str

eet

459

Colli

ns S

tree

t36

0 Co

llins

Str

eet

367

Colli

ns S

tree

t

350

Que

en S

tree

t39

0 La

Tro

be S

tree

t41

4 La

Tro

be S

tree

t

530

Colli

ns S

tree

t35

Col

lins

Stre

et62

8 Bo

urke

Str

eet

360

Colli

ns S

tree

t12

0 Co

llins

Str

eet

990

La T

robe

Str

eet (

Mel

bour

ne W

ater

)55

5 Bo

urke

Str

eet

735

Colli

ns S

tree

t (AT

O)

55 C

ollin

s St

reet

440

Colli

ns S

tree

t

707

Colli

ns S

tree

t (La

nter

n)

850

Colli

ns S

tree

t (Au

reco

n)

Good

s Sh

ed S

outh

357

Colli

ns S

tree

t

555

Lons

dale

Str

eet

80 C

ollin

s St

reet

655

Colli

ns S

tree

t

120

Colli

ns S

tree

t

2 El

izab

eth

Stre

et

628

Bour

ke S

tree

t

735

Colli

ns S

tree

t (M

erce

r)

171

Colli

ns S

tree

t

700

Bour

ke S

tree

t2012

Committed AvailableTotal Area

96,869m2 169,307m2

266,176m2

2013


118,693m2 58,159m2

176,852m2

2014


44,000m2 124,500m2

168,500m2

2012 2013 2014

360

Colli

ns S

tree

t

120

Spen

cer

Stre

et

385

Bour

ke S

tree

t

555

Colli

ns S

tree

t70

0 Co

llins

Str

eet

150

Col

lins

Stre

et (W

estp

ac)

720

Bour

ke S

tree

t

180

Lons

dale

Str

eet

Supply



New Supply PipelineRecently coMpleted and pRoJects UndeR constRUction

address office nla (m2) status estimated

completion Major tenants current oppucancy commitment

735 collins Street, docklands 42,000 completed 2012 Australian Taxation office 100%

990 laTrobe Street, docklands 13,000 completed 2012 melbourne Water 100%

357 collins Street, melbourne 30,364 under construction 2012 cbA, Service Stream 66%

555 bourke Street, melbourne 20,443 under construction 2012 Holding redlich 29%

Goods Shed South, docklands 9,200 under construction 2012 Pearson 80%

850 collins Street, docklands 17,245 under construction 2012 Aurecon 62%

lantern, 707 collins Street, docklands 3,500 under construction 2012 lantern 0%

735 collins Street, docklands 42,000 under construction 2013 mercer / cbA 90%

171 collins Street, melbourne 29,000 under construction 2013 bHP billiton, evans & Partners 47%

700 bourke Street, docklands 63,000 under construction 2013 nAb 100%

150 collins Street, melbourne 20,000 under construction 2014 Westpac 77%

720 bourke Street, docklands 47,000 under construction 2014 medibank 64%

Source: PcA / colliers international research

Mooted coMMeRcial developMents

address proposed nla (m2) status owner

collins Square, docklands 100,000 dA Approved Walker corporation

405 bourke Street, melbourne 70,000 dA Approved brookfield office Properties

567 collins Street, melbourne 45,000 dA Approved APn / leightons

664 collins Street, melbourne 47,000 dA Approved mirvac Group

digital Harbour, 1000 la Trobe Street, docklands 32,844 dA Approved digital Harbour Holdings Pty ltd

385 bourke Street South Tower, melbourne 25,500 dA Approved colonial first State GAm

melbourne central, 300 lonsdale Street, melbourne 24,000 dA Approved GPT

82 collins Street, melbourne 38,000 dA Approved Qic

360 collins Street, melbourne 25,000 dA Applied dexus Property Group

180 flinders Street, melbourne 20,000 dA Approved dexus Property Group

685 laTrobe Street, melbourne 37,200 dA Approved charter Hall / Premier

395 docklands drive, docklands 22,000 dA Approved mAb

Source: PcA / colliers international research



Vacancy

•The melbourne cbd vacancy rate increased from 5.2% in January 2012 to 5.6% in July 2012. This increase was due to new supply additions not being offset by a corresponding increase in demand.

•A total of 55,868m² of new supply was introduced over the six months to July 2012, slightly less than the 10 year six monthly average of 69,006m².

•The vacancy rate for melbourne cbd remained the second lowest amongst all capital cities, with Perth cbd having the lowest vacancy rate at 4.2%.

•The net absorption level remained below the long term average for a second consecutive six month period, recording 34,085m². This is an increase from the second half of 2011 when 15,007m² was recorded.

•The A grade vacancy rate increased slightly from 3.5% in January 2012 to 3.9% in July 2012.

•The Premium grade vacancy rate increased by 0.7% to 6.6% with negative net absorption of -4,540m² recorded over the past six months.

•The vacancy rate in docklands continued to remain the lowest amongst all precincts, increasing by 1.2% to 1.9% in July 2012.

•The eastern and north eastern core was the second best performing precinct during the first half of 2012, recording positive six month net absorption of 6,004m². Vacancy declined from 5.0% in January 2012 to 4.6% in July 2012.

•colliers international forecasts the vacancy rate to continue to increase and peak at 7.5% in July 2013. This is due to the significant amount of backfill space entering the market, combined with the softening of the employment market across the cbd during this period.

Source: PcA omr July 2012 / colliers international research

MelBoURne cBd vacancy By gRade


Vaca

ncy

Rate

Total Vacancy Factor

6.7% 5.6%

10 Year Historical Average

15%

10%

0%

5%

25%

30%

20%

Jan-

90Ju

l-90

Jan-

91

Jul-9

1

Jan-

92

Jul-9

2

Jan-

93

Jul-9

3

Jan-

94

Jul-9

4

Jan-

95

Jul-9

5

Jan-

96

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Janl-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10Ju

l-10

Jul-1

1

Jan-

11

Jul-1

2

Jan-

12Ju

l-13

Jan-

13Ju

l-14

Jan-

14Ju

l-14

Forecast

Premium A Grade B Grade C Grade

12%

10%

8%

4.7%

5.9%6.6%

4.3%

7.6%

5.7% 5.9%

3.5% 3.9%

9.8% 9.9% 10.0%

6%

4%

2%

0%

Jul-11 Jan-12 Jul-12

Vaca

ncy

Rate

MelBoURne cBd total oFFice MaRKet vacancy Rate


MelBoURne cBd - stocK & vacancy By pRecinct & gRade

pRecinct / gRade total MaRKet WesteRn coRe easteRn coRe / noRth east civic docKlands spenceR /

FlagstaFF

stock (m2)vacancy Rate

(%)stock (m2)

vacancy Rate (%)


(%)stock (m2)

vacancy Rate (%)


(%)stock (m2)

vacancy Rate (%)

total - All Grades 4,149,993 5.6% 1,579,783 7.3% 1,016,270 4.6% 432,448 4.9% 568,053 1.9% 553,439 6.9%

premium 623,692 6.6% 300,363 9.1% 239,278 5.9% n/A n/A 84,051 0.0% n/A n/A

A Grade 1,900,760 3.9% 564,909 4.9% 560,034 3.1% 180,259 5.2% 405,515 1.1% 190,043 8.3%

B Grade 927,918 5.9% 376,593 6.8% 108,635 7.8% 106,394 1.3% 78,487 8.2% 257,809 5.1%

C Grade 576,471 10.0% 296,665 11.1% 74,882 7.9% 108,498 9.4% n/A n/A 96,426 8.9%



Leasing Market Activity incentives continUe to incRease •uncertain economic conditions, low business

confidence levels and increasing vacancy forecasts, has resulted in face rents remaining stable and an increase in incentives over the past six months.

•incentives increased over the past six months across all grades within melbourne’s cbd. The largest increase being in the Premium Grade which increased from 12-15% in January 2012 to 18-25% in July 2012.

•despite the increase in incentives Premium Grade net face rents increased marginally to $572/m² pa as at July 2012. This stability in face rents led to a 5% decline in Premium grade net effective rents over the first half of 2012.

•Average A Grade net face rents declined by 0.9% over the first half of 2012 and are currently at $423/m² pa in July 2012.

Average incentives increased from 15-20% in January 2012 to now ranging from 20-25% resulting in average net effective rents falling by 7.4% over the last six months to $331/m² pa in July 2012.

•Average b Grade net face rents decreased from $336/m² pa in January 2012 to $331/ m² pa in July 2012. Average incentives have increased from 15-25% in January 2012 to 20-25% in July 2012, causing average net effective rents to decline by 4.4%, from $263/m² pa in January 2012 to $251/m² pa in July 2012.

•This trend is likely to continue over the remainder of 2012 and into 2013 with face rents remaining generally stable and incentives continuing to increase due to the increase in sub-lease and backfill space which is forecast to enter the market during the period.


MelBoURne cBd oFFice net eFFective Rents

2010 2011 2012 2013 2014 2015

Forecast$600

$500

$400

$300

$219

$444

$353

$257

$447

$326

$251

$438

$314

$241

$446

$320

$246

$400

$300

$200

$100

$0

Premium A Grade B Grade

$429

$307

$237

Vaca

ncy

Rate

aveRage incentive Range

grade Q2 2011 Q4 2011 Q2 2012 6-month Forecast

premium 10-15% 12-15% 18% - 25%

A Grade 15-20% 15-20% 20% - 25%

B Grade 15-25% 15-25% 20% - 25%


357 Collins Street, Melbourne



2005 2006 2007 2008 2009 2010 2011 2012

9.0

8.5

8.0

7.5

7.0

6.5

6.0

5.5

5.0

Equi

vale

nt R

ev Y

ield

s (%

)

Investment Market ActivityMelBoURne cBd investMent deMand ReMains stRong

•despite a rising vacancy rate and softening effective rents, office assets within melbourne’s cbd remain highly sought after with Premium and A Grade stock experiencing particularly strong demand.

•The key driver behind investment transaction activity has been the lack of core assets on the market for sale, as opposed to a lack of interest from investors.

•offshore investors remain particularly active, attracted by economic stability, comparatively high yields and market transparency.

•According to colliers international, year-to-date single asset sale volumes for transactions above $20 million show melbourne cbd leading the national tally with $629.5 million of sales recorded.

•Whilst the melbourne cbd has had the highest sales volume for 2012 YTd, the figures were skewed by two major deals and current on-market stock levels are very limited, hence the end of year sales volume is expected to be well below the levels seen in the previous few years. This subdued short-term transactional outlook for melbourne is more a function of a lack of investment supply than weak demand.

•There have been six property sales during the first half of 2012 with the largest being 242 exhibition Street (50% share). This was purchased by investa office fund from the investa Property Group for $217.5 million.

•offshore buyers purchased two properties

- 477 collins Street was purchased by Pioneer olderfleet Property (AViVA investors) for $67 million; and

- 525 flinders Street was purchased by AfiAA (Switzerland) for $50.86 million.

•Private investors purchased two properties

- 565 bourke Street purchased for $53 million; and

- 501 Swanston Street purchased for $60 million.•off market sales remain the dominant form of

transaction with only three assets sold via on-market processes this year. Two of these were the result of 2011 sale campaigns.

•Secondary assets are attracting interest, however buyers need to be shown the potential in these assets in order to offer strong prices.

•Yields for prime grade remain strong, reflected by recent sale of 150 collins Street achieving a yield of 6.77%.

•Premium yields have remained stable in six months to July 2012, sitting between 6.50% – 7.00%. A Grade yields have also remained

stable during this period, recording between 7.00%-7.75%, as did b Grade yields which range from 8.00%-9.00% in July 2012.


MelBoURne cBd a gRade aveRage yields

aveRage yield Ranges

grade Q4 2010 Q2 2011 Q4 2011 Q2 2012 change in yields since Q4 2011

premium 6.50-7.00% 6.50-7.00% 6.50-7.00% 6.50-7.00%

A Grade 6.75-7.75% 7.00-7.75% 7.00-7.75% 7.00-7.75%

B Grade 8.00-9.25% 8.00-9.00% 8.00-9.00% 8.00-9.00%


150 Collins Street, Melbourne Purchased by GPT Wholesale office fund for $181 million in July 2012.



Direct Super FundsREITsWholesale FundsO�shore

2010

21%

25%

25%

35%

28%

4%

2012 (YTD)

19%

18%

28%

35%

2011

36%

6%

13%

6%

36%

2009

56%

37%

6%

OtherPrivate

Investment Analytics capital RetURns continUe to gRoW•According to iPd Australia’s Property

investment digest, melbourne’s cbd office market experienced positive capital growth during march 2012.

•capital returns increased by 3.8% per annum in march 2012 while income returns increased by 7.4% per annum, taking total returns to 11.2% per annum.

•Annual capital returns for Prime Grade properties decreased from 3.9% as at december 2011 quarter to 3.8% in the march 2012 quarter, while annual income return decreased from 7.5% in the december 2011 quarter to 7.4% in the march 2012 quarter.

oFFshoRe investoR deMand incReases•Wholesale funds & reiT’s were the most

active buyer type during the first half of 2012, making up 63% of the total value of office sales within melbourne cbd during the period. This was mainly due to the purchase of 242 exhibition Street (50% share) by investa office fund and 150 collins Street by GPT Wholesale office fund.

•The number and value of acquisitions by private investors within the melbourne cbd office market increased, making up 18% of sales during the first half of 2012.

•The melbourne cbd remains an attractive investment destination globally. offshore investor demand remained strong accounting for 19% of total sales volume.

•The largest purchase by a foreign entity during first half of 2012 was the acquisition of 477 collins Street by Pioneer olderfleet Property (AViVA investors) from Australian unity office Property Trust for $67 million.

MelBoURne cBd pRiMe gRade oFFice RetURns

Source: iPd Australia / colliers international research

MelBoURne cBd investMent sales By BUyeR type


Capital Return Income Return

Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12

15

10

5

0

-5

-10

-15

Rolli

ng A

nnua

l % p

a



leasing activity

address start date area (m2) tenant

389-399 collins Street, melbourne feb 2012 600 Global corporate Services

459 little collins Street, melbourne feb 2012 830 WHK

530 collins Street, melbourne mar 2012 2,245 Tertiary education Quality and Standards Authority

601 bourke Street, melbourne mar 2012 1,560 cGu insurance

575 bourke Street, melbourne Apr 2012 1,078 Spendvision

101 collins Street, melbourne Apr 2012 1,733 Gilbert & Tobin

520 bourke Street, melbourne may 2012 1,122 draft fcb melbourne

101 collins Street, melbourne may 2012 500 Sumitomo Australia

405 - 407 collins Street, melbourne may 2012 750 bluebag

96 flinders Street, melbourne may 2012 1,708 Aconex

31 Queen Street, melbourne Jun 2012 964 careSuper

50 Queen Street, melbourne Jun 2012 626 Praemium

452 flinders Street, melbourne Jun 2012 1,110 oceaneering Services Australia

601 bourke Street, melbourne Jul 2012 580 daly international

222 exhibition Street, melbourne Jul 2012 950 frontier investments

360 collins Street, melbourne Jul 2012 1,260 laTrobe university

120 collins Street, melbourne dec 2012 631 Gresham Partners

357 collins Street, melbourne Jan 2013 5,070 cbA

171 collins Street, mellbourne Aug 2013 944 egon Zehnder international

11 exhibition Street, melbourne Jan 2014 11,747 buPA

720 bourke Street, melbourne Aug 2014 30,000 medibank

city West Police complex, 313 Spencer Street, melbourne Jul 2015 28,050 Victorian Police

Recent Market Transaction Activity


investMent sales activity

address sale date sale price ($mil)

capital value ($/m2)

yield (%)* vendor purchaser

477 collins Street feb-12 $67 $5,640 7.74% Australian unity office Property Trust Pinoeer olderfleet Property (AViVA investors)

565 bourke Street mar-12 $53 $3,320 8.59% ocbc Shakespeare Property Group

242 exhibition Street may-12 $217.5 $6,600 7% investa Property Group investa office fund

501 Swanston Street may-12 $60 $3,529 - PdG corporation & Salvo Property Group Vince Giulano

525 flinders Street Jun-12 $50.86 $4,986 7.3% uniting church (nSW) Trust Association ltd AfiAA foundation for international real estate investments

150 collins Street Jul-12 $181 $8,816 6.77% APn / Grocon GPT Wholesale office fund

* equivalent reversionary Yield Source: colliers international research



Outlookdespite a large number of buyers chasing better quality assets across melbourne’s cbd office market, the short term outlook for transaction volumes remains subdued. This is a function of the lack of investment grade stock on the market for sale, as opposed to low levels of demand. Active capital chasing these assets will continue to be driven by offshore investors however many local wholesale funds and reiTs have large allocations for the right asset. institutional investors will continue to be drawn to assets within the melbourne’s cbd due to its industry diversity, deep tenant market, stability and relatively high yields compared to other cities globally. The ongoing record low returns in bond markets see’s the implied risk premium for Prime Grade property at its highest on record, supporting the potential for yield compression in the medium term.

deloitte Access economics forecasts White collar employment growth to continue across the melbourne cbd, at an average of 0.9% per six months, over the next two years. This would mean an addition of 12,180 more cbd workers by June 2014, resulting in demand for an additional 182,000m² over the period. despite colliers international forecasts showing that net absorption will remain positive over the next two years, at an average of 30,000m² per six months, above average supply levels will lead to increased vacancy during the period.

new supply is expected to add 234,000m² to the market over the next two years, of which 75% is currently pre-committed. Additional backfill supply of 120,000m², relating to these pre-commitments, is likely to be the major culprit behind the forecast rise in vacancy which colliers international research expect will peak at 7.5% by July 2013, before trending down. The majority of this rise in vacancy will be higher amongst Secondary Grade buildings due to the majority of backfill being in this grade.

As a result we expect face rents to remain stable while incentives will experience further increase, as landlords look to offer more to attract and secure tenants. This will in turn lead to further declines in effective rents across all grades over the next 12 months.

collieRs inteRnational

level 32, 367 collins Street, melbourne Vic 3000tel 03 9629 8888FaX 03 9629 4945

ReseaRcheR

Amita Mehrotra manager / researchtel 03 9940 7213FaX 03 9092 1413

colliers international does not give any warranty in relation to the accuracy of the information contained in this report. if you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections.

colliers international will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. coPYriGHT - colliers international 2012.

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melbourne cbd office research forecast report second half 2012

Documents

tightest cbd office

melbourne t cbd office

total vacancy rate

australian tax office

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major office sale transactions

unemployment rate

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