The Office Perspective | 2 July 2024

The JLL Victorian Office Investments team is pleased to provide you with our inaugural weekly edition of The Office Perspective.

Please contact me on 0415 767 915 / [email protected] if you would like to receive our more detailed weekly updates via email each Monday morning.

This update will cover:

• Recent Market Observations
• Current & Forthcoming Opportunities
• Articles of Interest

Recent Market Observations from the JLL Office Investments team

Over the past two months, we have observed several new trends from our consistent activity with both vendors and purchasers as the market continues to evolve throughout 2024.

Overall, sentiment is improving in the broader office market and we anticipate that more divestment activity will occur in H2 as the June valuation cycle rolls through.

1. Uncertainty in the market has stalled divestment/acquisition momentum – We need the debt market to stabilise and inflation to be contained for confidence to return to the macroeconomy.
2. Countercyclical investment is in train though convincing capital to commit is a challenge – The market recognises that there is significant value in buying office assets in the current market, though capital is heavily scrutinising opportunities, particularly those that have exposure to heightened vacancy, a short WALE and CAPEX.
3. The $20m - $70m market will see a lot of activity as privates find it challenging to hold on – Discussions with Middle Market office owners have progressed from preliminary advice during the pandemic to far more in depth value analyses and divestment proposals being requested by several long term owners. We anticipate that the next 6 months will see a major upshot in divestment activity, primarily via on market processes.
4. Offshore investment is tricky, leaving the door open for local investors – Victoria is somewhat out of favour for offshore capital groups due to our evolving taxation system. We expect that this will create a window of opportunity for local investors who may benefit from not having the level of offshore competition that they have previously faced.
5. Purchaser risk profiles are changing – Traditional value add/opportunistic investors are now largely turning their attention to core plus assets that they can generate a similar return profile. Risk appetite has reduced and fundamentals of properties have never been so valued by active purchasers.

Current & Forthcoming Opportunities

In what will be a telling barometer for the office investment market in Melbourne, our team are currently handling the below high profile opportunities.

Should you wish to discuss the below opportunities and receive additional information on any of these properties, please contact any member of the JLL team.

Articles of Interest

Article #1 – The Australian Financial Review - Can Google bring groove to drab Docklands?

Key points:

• Google is in talks with developer Lendlease to take the top three floors of its soon-to-be-completed Melbourne Quarter Tower, a move that could inject a dose of tech cool to the drab Docklands precinct.
• While the deal is blanketed in strict confidentiality, the tech giant’s mooted move – from its current space at 161 Collins Street – is being described by market sources as Docklands worst-kept secret.
• However, if Google does set up its workstations on levels 32-34 in the Wood Bagot-designed tower, it will undoubtedly generate some much-needed hipster vibes for a city precinct often described as bleak, soulless and, in winter, windy.
• A tech neighbourhood is already emerging, with Amazon moving in a block away. Also coming to the $1.2 billion Melbourne Quarter Tower is Seven Network, which is moving from digs next to the Docklands stadium. Medibank has already committed to the tower, as well as design, advisory and engineering consultancy firm Beca.
• However, the deal with Google, if finalised, could come at a price. Rents for the top floors are around the $850 market, but it is expected Google may win an incentive worth 50 per cent or more, say several market sources.
• Floor plates in the building are around 2000 square metres but taper across the top three floors as the building’s shape curves, giving Google a little more than 3000 square metres.
• And even with those four pre-commitments, occupancy is still well under half of the 69,000 square metres of space in the tower.
• Major moves are in train elsewhere in the Melbourne CBD, with big four consultancy EY set to take to up 20,000 square metres at 111 Bourke Street, moving from its current home at 8 Exhibition Street.

Article #2 – The Australian - EY makes the shift to the towers

Key points:

• Melbourne’s office market has received a boost with big four consulting firm EY to shift its state headquarters to the landmark Southern Cross Towers precinct in the prestigious Paris end of the city’s central business district.
• The move will see the firm come out of its long-time home at 8 Exhibition St, owned by GPT’s wholesale office fund and Singaporean group Keppel REIT, and take about 20,000sq m in East End Place at 111 Bourke St. The shift effectively fills up the top floors that are to be left in that tower as Australia Post moves to a new Richmond office, which is separately being developed by Charter Hall.
• The deal is a breakthrough for Melbourne’s office leasing market and shows the premium which top tenants are putting on their locations, as well as demanding modern offices.
• The consulting firm’s shift also signals its confidence despite in April cutting more than 100 roles in response to the soft advisory market and earlier moves that saw partners and more than 240 staff exit in the second half of last year.
• EY is taking more space than it now occupies partly as its business is expected to pick up along with the economy and as the return to office theme deepens in the financial services sector as large firms look to drive productivity.
• It is now expected to make the move in late 2026 once the floors have been customised

We hope you have enjoyed our first online edition of The Office Perspective. Please reach out to our specialised team if there is anything we can assist you with.

Tim Carr - JLL Victorian Office Investments