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What drives the Australian commercial real estate market?

Office space demand is set to increase in the next 10 years and this means that Australian companies are having to work smarter not harder with the space that they can afford. Australia has a growing population and demand for white-collar services are likely to continue to rise.

Lease a smaller space, fit it out smarter

Cost will continue to be the most important factor in building selection but other factors including workplace format, quality of building services and amenities will increasingly impact on leasing decisions. 

Landlords and building managers must deliver an enhanced customer service experience to gain a competitive advantage in the marketplace. We heard about this from the panel at Amicus’ Melbourne commercial real estate breakfast, and they include new end of trip concierge services and butler style services for building occupants.

One of the key objectives for Australian companies is implementing more-flexible work practices through new smarter workspace designs and fitouts.

The average workspace ratio is predicted to decrease by 5.5%, companies need to change their workplace formats and work on their space optimisation.

Companies are taking up smaller amounts of space in nicer buildings and being smarter about their office designs and fitouts, as we heard from Savills and Coface panellists at the Sydney event.

Generation Y and Millennials are looking for a better work-life balance and more integration
of their home, work, and social environments. Companies need to meet their expectations to attract and retain talent as Generation Y and Millennials will represent 50% of the workforce by 2020.

Yield, business confidence and occupancy rates are still the top three drivers of the commercial real estate market. All three are affected by consumer confidence, politics and economic conditions. The office market is particularly influenced by the state of the economy the price of commercial property is largely driven by the rental income it will generate, which in turn is driven by tenant demand and the certainty of the lease contract.

Sydney and Melbourne are in full rental growth and vacancy decline compared to rates seen in Brisbane and Perth. This divergence is reflective of the wider demographic and trends being; strong migration and employment growth in Sydney and Melbourne. Other states illustrate a slower population growth.

Economic factors are the key drivers in the tenant demand cycle. The health of the state economy is considered more important than the national or local economy. Vacancy rates are expected to tighten across all markets. Tenants are more likely to relocate when using a tenant representative, rather than dealing with the landlord directly and cost is still the most important consideration for tenants, trumping location, building, flexibility and sustainability.

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Date 15 August 2017 By Megan Greig