Creating Resilience: The AI Revolution: Redefining Australian Office Spaces
Mark Curtain
on the state of play
in.sites is your gateway to the latest leasing and advisory insights and trends shaping the commercial real estate landscape.
We are pleased to introduce the inaugural issue of in.sites, a comprehensive market synopsis brought to you by CBRE’s Pacific Advisory and Transaction Services team.
CBRE's Advisory and Transaction Services business incorporates landlord and tenant leasing in the retail, office and industrial sectors, as well as our property advisory business. With approximately 400 dedicated staff members covering this dynamic area of our business in the Pacific region, our team is well-positioned to present the current state of play as we reach the mid-point of 2024.
Despite the current market instability as a result of sticky inflation and elevated interest rates, leasing markets have shown remarkable resilience over the past three years, making it clear that sector demand drivers are the key fuel to their prosperity.
In the office sector, the notable resurgence in return-to-work numbers, coupled with a robust appetite for top-tier office facilities, is driving strong rental growth across prime markets. Investment by tenants in new high-quality office facilities has never been stronger, while new supply is diminishing due to rising construction costs and softening capitalisation rates. In some markets, this will lead to a distict supply shortage in the medium term.
Retail dynamics are undergoing significant shifts, with the post-COVID-19 influx of people back into central business districts (CBDs) and the resurgence of international migration fueling retail expansion. Large-format retail has been a standout performer over the past 12 months.
The industrial and logistics sector remains resilient, bolstered by sustained demand from third-party logistics (3PL) providers, a surge in cold storage requirements, and the ongoing expansion of the data centre sector. While vacancy rates will increase moderately in the short term, Australia will remain one of the lowest vacancy markets across the globe by some margin.
Finally, our property advisory business continues to evolve, with its primary charter currently focused on supporting the needs of our clients in development and infrastructure delivery. Our current project books span from Sydney to Riyadh. Looking forward, this will expand over time to a broader offering to enable us to deliver an ‘end to end’ advisory service to our investor and occupier clients.
We are excited to embark on this journey of insights and exploration. Please feel free to reach out to any of our A&T Executive team (details at the rear of the magazine) for additional research, insights or support.
Mark Curtain Head of Advisory & Transaction Services, Pacific
in.conversation
WITH KIRSTI SIMPSON OF WOODS BAGOT
In the first edition of in.coversation, Mark Curtain, CBRE's Head of Advisory & Transaction Services, sits down with Kirsti Simpson, the Studio Executive Chair at Woods Bagot. Kirsti Simpson, a visionary in her field, leads one of the world's most renowned architectural practices. From discussing her dual responsibilities in local and global sectors to the transformative projects in the pipeline for Brisbane, Kirsti shares her unique perspectives. She also provides invaluable insights into the diverse approaches to return-to-work strategies across varied geographies and the evolving trends in sustainable fitout design.
Welcome Kirsti to our in.conversation interview. I thought I would start by asking you to explain your role within Woods Bagot, and some of your key focus areas, as well as the geographies that you look after across the business.
There are several roles within the practice that I fulfill. One of those is local and one is global. My local role is as Executive Chair of our Queensland practice, so I am responsible for all the projects that we undertake in this region, and the projects that we are involved in other regions.
I'm particularly interested in the local lens, because I am passionate about the tremendous growth happening in Brisbane and the next 10 years of transformative projects that will occur in preparation for the 2032 Olympics and the legacy beyond. It is very exciting to be guiding this business during a time where the local market is focused on a long-term vision.
My other role, Global Sector Lead of Commercial Workplace ID, requires a different mindset. We have 17 studios across the globe, throughout Southeast Asia and APAC, the US, the UK, and the UAE. It is an interesting challenge to lead this sector across so many varied geographies, cultures, and infrastructure requirements. The focus for my global role is to seek opportunities to take a genuinely global perspective and ensure we are acting as a unified team, giving consistent advice to our clients. We have an exceptional ability to bring a diversity of thinking, global data, evidence, and intelligence to the transformative places that we create.
With that in mind, we've seen very different outcomes as a result of COVID-19 across different regions around return to work rates. Rates and outlooks for each market appear to be quite different. Are there any themes that you're seeing from a design perspective in different regions on how businesses are shaping their space for the future, and how they're designing it to encourage people to come back to the office?
Yes, we are seeing a varied position across the geographies, as a result of our areas of focus and the scale of our business across the globe. It is of great benefit to understand the varied approaches, varied success, and predictions for the future globally.
What is interesting, is the different levels of evolution in hybrid working influenced by the post-COVID-19 experience.
There are very specific examples across each of the geographies. For example, starting in December 2024, employers across Singapore will be mandated to have processes in place to consider formal requests for Flexible Working Arrangements (FWAs) from employees, along with new guidelines to manage this process.
Even within Australia, we are seeing a great difference across the capital cities as it relates to daily participation. For example, Brisbane has bounced back far quicker than Melbourne and Sydney, where the COVID-19 restrictions were much more strict. This has allowed us to start to test what the future might hold.
In the US and UK, things are a little slower, and the Southeast Asia regions are something very different, approaching return-to-work with a greater level of caution.
This knowledge is something that we can bring to projects that we consider across the globe.
When you consider the strategies that businesses are proposing to adopt, not just design practices, but the daily operation of their tenancy, the potential to be innovative is very exciting. Is there anything that you're seeing that excites you? Practices that are different and unique?
It’s an interesting question. I think the issue that I'm probably most excited about is simply the fact that we are now in the post-COVID-19 era.
The issue of workplace strategy is now a genuine part of business strategy, so
KIRSTI SIMPSON, STUDIO EXECUTIVE CHAIR AT WOODS BAGOT
the work that we do has been elevated in a corporate sense, which is incredibly exciting. There's a clear understanding of the importance of place and the requirement for the workplace to be far more enticing than it's ever been, to bring people back to the office, reinforce culture, embrace diversity and inclusion, achieve the highest levels of sustainability and wellness and articulate brand. These areas have always been a focal point for us, but general interest in workplace engagement has certainly been amplified post-COVID-19.
We are now seeing businesses understand that there is no ‘one-size-fits-all’ solution to workplace engagement, and the focus comes down to customising the space based around the client’s workforce composition, the evolution of their strategy and their geographic location.
I could talk endlessly about the number of factors that come into play, but, in essence, it is critical that every workplace project is composed in a specific response to those requirements.
The same can be said about finding the right space – the power of place and the base building proposition, the amenity provided, and the precinct it sits within all contribute to the success of a workplace experience.
We are spending more time considering what is right for the workplace and the flexibility of that outcome for the future. The levels of flexibility and ability for a workplace to evolve – aligned with the business evolution – is something we all need to consider. How will a workplace we are creating today still have relevance, not just a few years into the lease term, but at the end of the lease term and beyond?
There's awful waste in office fitouts, and there's certainly more we can do to retain, refresh, reheat, and re-purpose. These are the words that we were starting to hear used more frequently. Are you hearing more conversation around that?
Yes, absolutely. Before I delve into sustainable fitout design, I wanted to loop back to one of your previous comments. I would agree that the flight-to-quality is real, but I would also say that part of the conversation is around the flight-toauthenticity and the flight-to-character. Whilst quality is important, creating an authentic and engaging space is critical. If I use our extraordinary 80 Ann Street project in Brisbane project, as an example, the programmatic overlay that exists ensures longevity. It is a living, breathing experience which is critically important for long-term sustainability.
We are experimenting with a number of strategies around ultimate flexibility. Spaces that remain relevant beyond the first lease term.
We are much less interested in a static environment and more interested in meaningful and purposeful flexibility that allows the space to adjust, creating a sustainable structure beyond the services and materiality.
The other overlay is the social sustainability aspects of health and wellness. We are creating spaces that support wellness programs, whether it is in the workplace or within the base building. We are much more interested in a democratic access to fresh air and natural light. Where appropriate, mixed mode spaces that authentically represent the ecosystem that they are connected to.
Creating this environment is more feasible in some geographies than others. There is not a big uptake in climates that have extreme cold or hot weather. Singapore is one of the areas which celebrates these opportunities, as we have been able to do in Brisbane.
"We are now seeing businesses understand that there is no ‘onesize-fits-all’ solution to workplace engagement, and the focus comes down to customising the space based around the client’s workforce composition, the evolution of their strategy and their geographic location."
We are arriving at a point where the reporting requirements for businesses will be a big issue, and we will need to consider all aspects of business to achieve sustainability requirements and other metrics.
We are very focused on whether it is a workplace responding to a rating system or simply the obligation we take on to achieve best practice – which is not easy, but it is an important responsibility. The built environment contributes to nearly 40% of carbon emissions around the globe, and we should not underestimate the role we all play in creating a more sustainable world.
It is devastating to create a beautiful environment and see it get completely destroyed at the end of the lease. It is hard not to feel guilty about that level of waste.
We need to embrace every possibility as it relates to health and wellness, and to my earlier point about flight-to-quality, the other part of this is creating solutions that represent the place in which they exist, bringing human connection to a place and building a sense of community.
Any final thoughts Kirsti?
I think the only other thing I’d like to note is that before COVID-19, a lot of the conversations we would have in the early stages of a project were around the metrics of density and square meterage per person. The space required determined whether a space was efficient or not. I would say that we are moving towards a future where those metrics are significantly less relevant.
We are now more interested in the amenity provided, and a diversity of settings that allow for productive collaboration. There has been a complete reversal of the focus on individual desks, to something that is much more integrated and focused on culture.
And in doing so, we are now looking at the metrics that focus on the notion of operationalising belonging. In the future, we will seek out human centric spaces that feel enticing and create, foster, and support culture and strategy in a meaningful way. I think this is representative of a much more human way of calculating the benefit of workplace occupation.
It's interesting to hear you say that because we just don't have conversations around workplace densities anymore. It's just not raised like it once was. It's a term that has really fallen off the radar. The assessment around a building’s suitability is focused on floor plate functionality, building performance (services) and amenities to bring staff to the office. It’s great that financial metrics and workspace ratios are not the driving force, but allowing the workplace to speak as loudly as it can.
Completely agree, and I think the summary would be about getting the very best experts to provide the very best advice based on alternate metrics. And it's a greater challenge for you and me, but one that feels far more important.
THE I&L INVESTOR PERSPECTIVE
From Michael O’Neill
Regional Director of Industrial & Logistics Investor Services, Pacific, and Managing Director of Western Sydney
+61 431 500 939
michael.oneill@cbre.com.au
“The market is now returning to pre-2021 dynamics after two years of strong rental growth and increased development.”
The Industrial and Logistics leasing market has experienced significant activity in the past six months as it moves towards normalisation. After two years of strong rental growth and increased development, the market is now returning to pre-2021 dynamics, but at new market rents.
Although vacancy rates remain low compared to the 10-year average, incentives are starting to rise in all markets. In areas approaching / exceeding 2% vacancy, incentives have increased by 3% to 7%. Some clients are pushing for rents that reflect projected growth acheived in 2023, but achieving these rents may require longer letting up periods and increased incentives.
In major cities, infill locations are likely to experience moderated rental growth as market rents bifurcate. While occupier demand has softened in the first half of the year, current negotiations will lead to more transactions in the third quarter. Companies, however, remain cautious about securing new space at these elevated rents as consumer demand softens. Population growth will assist demand but most occupiers are experiencing subdued activity.
The sublease market has seen a significant increase, accounting for half of the total vacancy in New South Wales. The rate of sublease is concerning, however, some spaces will be quickly absorbed. Additionally, some lease structures are not desirable to active market occupiers, reducing competition for direct leasing opportunities. In New South Wales, fewer lease expiries are expected in 2025 compared to 2024. The absorption rate in the latter half of the year will impact retention, vacancy rates, and rents for 2025.
Land values remain strong, especially in landconstrained markets like New South Wales, but the cost of capital and construction is applying increased pressure on project feasibilities. The development pipeline in New South Wales is tight until 2026, making sites with minimal planning or development risk highly sought after. The demand for data centres has also increased to accommodate the capacity required by
artificial intelligence, creating additional competition for sites with the necessary infrastructure. Owner occupiers actively seek opportunities to avoid rental shocks and take advantage of capital growth.
Victoria has experienced similar conditions to New South Wales, with vacancy rates expected to approach 3% by the end of 2024. This will likely lead to incentives exceeding 20% in most large transactions. Some moderate rental growth of approximately 5% to 10% is expected in tighter markets like Dandenong South. Victoria is likely to benefit from the migration of thirdparty logistics providers (3PLs) from New South Wales, seeking to minimise exposure to higher rental rates in Sydney.
In Greater Brisbane, industrial building vacancy has reached around 2.5%, potentially increasing to 3% by the fourth quarter. Incentives are expected to rise to around 15% and possibly higher for buildings with operational or functional compromises. There are several larger greenfield projects and requirements in the market, indicating stronger absorption of available development land in the latter half of the year compared to the first half.
Western Australia is anticipated to see more investment stock coming online in the second half of the year, which will be well received by institutional investors and wealthy individuals looking to diversify their portfolios. The leasing market in Western Australia mirrors that of the East Coast, with vacancy rates increasing from 0.5% to circa 1.5%. The Adelaide market remains tight, however, leasing demand has softened like most markets.
The Pacific Industrial and Logistics market has experienced a decrease in activity in most regions, however, it is still one of the tightest markets worldwide. The market has certainly normalised, and an increase in vacancy is expected across all regions in the second half of 2024. This isn't surprising, given the two consecutive years of 20%+ rental growth and a weakened broader economy.
VIC XL Express: A Strategic Move for Seamless Logistics Solutions
STANLEY DRIVE, SOMERTON
In a notable development within the Australian real estate market, a prime property located at 24 Stanley Drive in Somerton, Victoria has been successfully leased. The transaction, which represents a significant movement in the commercial property landscape, was conducted off-market.
The property boasts an impressive total building area of 24,349 sqm and offers multiple loading faces, cross-docking capabilities, ample hardstand and loading areas, and modern corporate offices. Its strategic location provides direct access to the Hume Highway and complete drive-around functionality, making it an ideal destination for businesses seeking a well-equipped location.
XL Express, a prominent transport and logistics giant, is the new occupant of this expansive facility. Their move aligns with their growing business needs, catering to both transport and rapidly expanding third-party logistics (3PL) services. XL Express’ choice of this facility reflects their commitment to seamless logistics solutions and efficient distribution, benefiting businesses and customers alike.
From CBRE’s perspective, this successful lease transaction underscores our commitment to tailored real estate solutions. By facilitating a smooth transition for XL Express, we continue to create win-win outcomes for all parties involved.
Daniel Eramo
+61 400 871 191 daniel.eramo@cbre.com.au
Joe Brzezek +61 481 167 343 joe.brzezek@cbre.com
NSW Central: Groundbreaking Dual-Level Warehouse
BOOREA STREET, LIDCOMBE
‘Central’ is a new and innovative development located at 42 Boorea Street, Lidcombe, New South Wales. It offers unprecedented quality and flexibility to businesses in a central west location. The key feature of ‘Central’ is its dual-level warehousing and office accommodation, a groundbreaking concept that combines innovation and efficiency. This unique design caters to businesses of various sizes, providing spaces ranging from 6,000 sqm to 40,000 sqm, ensuring the perfect fit for all.
One of the main advantages of ‘Central’ is its quick access to the M4 on / off ramps, offering exceptional connectivity to all parts of Sydney. This convenient location allows businesses to easily transport goods and access key areas in the city.
The project is scheduled to commence demolition and construction in June 2024, with the projected practical completion date set for the first quarter of 2026. The marketing of the property is handled by co-appointees Michael O’Neill and Shaun Timbrell, in collaboration with Colliers International.
“Major infrastructure upgrades, like the WestConnex, have directly benefited the Central West industrial market. You can now get from Lidcombe into Sydney CBD in under 20 minutes. As a result, CBRE are seeing increased enquiry coming out of South Sydney as tenants seek rental savings, modern facilities and transport efficiencies,” Mr. Timbrell said.
Overall, the ‘Central’ development aims to redefine warehousing and office accommodation in Sydney’s Central West, representing a significant advancement in commercial real estate.
Michael O’Neill
+61 431 500 939
michael.oneill@cbre.com.au
Shaun Timbrell
+61 433 302 979
shaun.timbrell@cbre.com.au
In conjunction with Colliers International
Matthew Frazer-Ryan: Joint Head of QLD Industrial & Logistics Appointed to Further our Service Offering
Matthew Frazer-Ryan, who is based in Brisbane, will be partnering with Peter Turnbull to co-lead the Queensland Industrial and Logistics team. With over 20 years of industry experience, Matthew brings a wealth of knowledge and expertise to the business. He has an impressive track record of successfully closing major sales and leasing transactions, demonstrating his skills in this field. Matthew possesses a deep understanding of current occupier trends and requirements, further enhancing his ability to deliver exceptional results for clients.
Michael O'Neill, CBRE's Pacific Head of Industrial and Logistics said, “This is an exciting time, particularly for our Brisbane and National I&L team. Matthew is highly respected by both owners and occupiers, and has an envious track record with some of the most noteworthy transactions across the Queensland market. His strong leadership qualities also complement our existing operations.”
SCAN TO EXPLORE
Mark Curtain, CBRE's Pacific Head of Advisory and Transaction Services added, “In securing Matthew as Joint Head of Queensland's I&L business, we have another market leader who will assist us in our growth aspirations across this fast-paced sector.”
CBRE's Biggest Industrial & Logistics Event Hits the Mark
On June 20th, CBRE and REA Group jointly hosted the ‘I&L Insights 2024’ event, a gathering that brought together over 100 professionals from the Industrial and Logistics sector. Dr. Henry Chin, CBRE's Global Head of Investor Thought Leadership and Head of Research for Asia Pacific, our esteemed keynote speaker, shared illuminating critical trends shaping the logistics real estate landscape across the Asia Pacific region.
Dr. Chin emphasised the industry’s shift toward cost sensitivity. Rather than aggressive expansion, occupiers are now prioritising operational efficiency and budget control. Leasing activity in 2024 will be driven by upgrading demand, with cost-saving-driven relocations playing a significant role.
The Asia Pacific Leasing Sentiment Survey revealed that 42% of respondents favour relocating to core-located assets — properties strategically positioned near end-users and major transportation nodes. Interestingly, proximity to public transportation has gained equal importance, reflecting efforts to mitigate rising transportation costs.
Crystal Bennett-Dezwart
National Operations Manager, Pacific Industrial & Logistics
crystal.bennettdezwart@cbre.com
Our panel discussion featured industry luminaries: Michelle McNally, CEO of Aware Real Estate; Matt Koskinen, Managing Director at Blackstone; Ann Flaherty, Property Economist at REA Group; Michael O’Neill, CBRE’s Regional Director of Industrial and Logistics; and was superbly moderated by Sass Jalili, CBRE Australia’s Head of Industrial and Logistics Research, and Director of NSW Research.
As we look ahead, we eagerly anticipate how these predictions and trends will unfold over the next year. Stay tuned for updates, and mark your calendars for next year’s event — it promises to be even more insightful!
For more information and to ensure you are at next year's I&L Insights, please reach out to Crystal Bennett-Dezwart or Kiera Fryar.
Associate Director of Marketing, Pacific Advisory & Transaction Services, and Capital Markets kiera.fryar@cbre.com.au
THE I&L OCCUPIER PERSPECTIVE
From Trevor O’Grady
Regional Director of Industrial & Logistics
Occupier Services, Pacific
+61 428 299 786
trevor.ogrady@cbre.com
"A holistic approach is critical for occupiers to achieve sustainable growth in the transformed landscape."
The market is undergoing a significant shift, driven by various factors arising from the COVID-19 pandemic. Occupiers are at the forefront of this transformation, grappling with new realities and embracing innovative solutions.
During the COVID-19 years, occupiers often leaned heavily on a "just in case" inventory model, where warehouses were stocked to the brim to handle potential fluctuations in demand. However, declining sale volumes post-COVID-19, coupled with limitations on working capital, have forced a strategic shift towards a "just in time" approach. This necessitates a re-evaluation of existing inventory management systems and a focus on optimising storage space within facilities.
For occupiers, this means maximising every cubic metre. Solutions like vertical storage systems, which utilise height, are gaining traction due to their ability to significantly increase storage capacity. Additionally, warehouse management software can optimise picking routes and product placement, minimising wasted space and employee travel time.
Automation is emerging as a game-changer, allowing occupiers to navigate this new environment, and address labour and space challenges. By automating repetitive tasks, companies mitigate high labour costs and achieve remarkable storage density. Automated storage and retrieval systems (ASRS) can condense inventory into a smaller footprint, while robotic process automation (RPA) can streamline administrative tasks, freeing up human employees for more strategic roles.
The equation for success in today's market isn't simply about cost reduction. The rise of e-commerce, emphasising fast and often free delivery, has added complexity to distribution networks. Customers now expect a wider variety of products to be available for quick delivery, placing pressure on occupiers to maintain a balanced inventory while fulfilling orders swiftly. The answer lies in designing adaptable networks and developing effective supply chain strategies. Occupiers need to be able to scale their operations either up or down quickly, depending on demand fluctuations. This requires a proactive approach with ample planning time, with lead times for network and facility design increasing
to around three years, compared to two years prepandemic.
Thankfully, automation solutions are becoming more accessible. Recognising the initial investment barrier for some businesses, vendors are introducing leasing options and pay-as-you-go models. Additionally, collaboration between landlords, debt and structured finance teams, and third-party funding is being explored to further facilitate investment in tenant fitout within advanced facilities.
During the COVID-19 period, we witnessed a surge in demand for space, leading to record low vacancy rates and skyrocketing rents. This boom also created surplus inventory and expanded networks — the current focus, therefore, is on streamlining operations and rationalising costs. Occupiers are looking to consolidate multiple facilities into fewer technologically advanced facilities. This strategy optimises their real estate footprint and reduces costs associated with multiple locations. Furthermore, centralised facilities allow for a more integrated approach to inventory management and order fulfilment.
Despite the current subdued demand for space, we predict a rise in investment in advanced facilities over the next two years. Occupiers are looking beyond the present, investing in modern infrastructure and embracing automation to navigate future challenges and capitalise on upcoming growth opportunities.
I personally think now is the perfect time to reset real estate portfolio strategies to enable longer-term priorities to become achievable. Our supply chain team is working closer than ever with our real estate and project management teams to ensure network and facility design strategies can be appropriately planned, designed, and delivered. This collaborative approach, coupled with a focus on long-term strategic thinking, is critical for occupiers to navigate the transformed landscape and achieve sustainable growth in the years to come.
We are currently at ground zero with many of our clients to help initiate strategic thinking about how their business operates today, how they want it to grow, and what action items and teams need to be assembled to make the transformation a reality.
INTELLIGENT INVESTMENT
Cold Chain Logistics Services in Australia: A Growing Demand
Population growth, increased e-commerce spending, robust international trade activity, government support and initiatives are the primary factors fueling the cold chain logistic services demand. The three leading players in the Australian market are Lineage Logistics, Americold, and NewCold.
Australia's current refrigerated warehouse capacity is approximately 10.2 million cubed metres (m3). However, this lags behind major developed markets, the US (0.6 m3) and the Netherlands (0.9 m3) when considering cold storage capacity per person.
At present, Australia's cold storage capacity per person stands at 0.4 m3. To reach the level of capacity per person observed in the US, an additional estimated 400,000 sqm of new cold storage space will be required between 2024 and 2028.
Despite refrigerated facilities typically being built-to-suit developments, several speculative projects have been observed over the past few years. This is due to strong occupier demand and almost zero vacancy. There are also several speculative developments in the forward pipeline.
The commercial viability of these temperature-controlled facilities is reflected in the rental returns. Based on recent deals nationally, cold store and freezer spaces have achieved almost double the average rents of a typical super prime grade industrial and logistics asset.
The Australian cold chain logistics market is valued at approximately $8 billion AUD, with the greatest demand for cold storage space being frozen pallets. This makes up close to 50% of Australia's total capacity. The concentration of cold storage space in Australia is predominantly within Eastern Seaboard cities.
Australia's population is expected to rise by 15% over the next decade, which will inevitably generate further demand for goods requiring cold chain logistics, particularly in the food and beverage sector. Food retail spending totalled close to $170 billion AUD in 2023, and it is forecasted to reach just over $200 billion AUD by 2028.
E-commerce is also playing a significant role in driving the demand for cold chain logistics. According to the Australian Bureau of Statistics, between 2020 and 2023, each year, 28% of total online sales in Australia were for food products.
The growth of Australia's pharmaceutical sector is also attributing to the increased demand for cold chain logistics. Factors contributing to this growth include global demand, an aging domestic population, high levels of health-related government expenditure, world-leading research institutions, and a highly skilled workforce.
This data has been gleaned from a recent report by CBRE Research, providing valuable insight into the state of cold chain logistics in Australia. The report emphasises the need for increased investment in this sector to meet growing demand and alignment with major developed markets.
EXPLORE NOW
Delve into the main industry sectors demanding cold chain logistics services, and the growth drivers for the Australian market of these sectors.
PEOPLE SPOTLIGHT: INDUSTRIAL & LOGISTICS
Caris Kinsella
INDUSTRIAL & LOGISTICS, INVESTOR LEASING
CBRE takes great pride in the talent we have within our firm. Our team is composed of dedicated individuals who possess extensive knowledge and a proven ability to consistently deliver exceptional results for our clients. In our first 'People Spotlight' article, we have the pleasure of introducing one of our standout team members, Caris Kinsella, who joined CBRE in 2021. Caris' journey with us has been nothing short of remarkable, and we are excited to share her story with you.
Tell us about your journey in real estate and how you arrived at CBRE?
After finishing University in Western Australia (my home town), I set my sights on working in Public Relations (PR), and due to the thriving and much larger PR industry in Sydney, I made the move to the East. After eight years working within the agency side of PR, I was no longer stimulated or challenged by my role, and felt slightly uninspired by my career.
I have a lot of friends in real estate, in both the client side and brokerage roles, and it has always been an industry that appealed to me. I reached out to my network to get a better understanding of their specific roles and quickly realised that not only did my existing skillset translate well, but also there was a huge opportunity and support network being built for females in property, particularly in brokerage.
Through my own ambition and the help of my professional network, after three months of interviews and meetings I managed to secure a role with the North Sydney's Industrial and Office Parks team. The persistence and ‘hustle’ required to secure a job was a small taste of what life would become in my new role.
With no prior property experience, I can whole heartedly attribute my success to date to my incredible team. Not only did they provide unwavering support from the first day, but really mentored me and did everything they could to set me up for success. I feel very fortunate to have landed where I did.
More recently, an opportunity arose to join the Central West team, working with some of the best Industrial and Logistics operators in New South Wales. It was a tough decision to leave my existing role, however, wanting to focus on specialising in the I&L sector move to a larger core market was an opportunity I jumped at.
Working at CBRE allows for endless opportunities in a vast amount of business lines, the sky is the limit, really! I had the full support of my immediate office and wider team to make the move over to Central West.
What initially drew you to Industrial & Logistics?
When I joined CBRE I&L in 2021, the asset class was significantly outperforming all other asset classes.
The surge in e-commerce due to COVID-19 drove increased occupier demand for industrial spaces, making the industrial asset class a clear beneficiary. Brokerage was particularly interesting to me, as I knew it relied heavily on people skills and building relationships. With my background in PR, I felt I had honed my interpersonal skills and could apply this into a new role / industry. I was also definitely intrigued by the financial remuneration prospects that a commission based role offered, the thought of having no real ceiling to my earning potential was exciting.
How do you build and maintain strong client relationships?
I am extremely passionate about building and fostering both internal and external relationships. People are at the core of what we do at CBRE. I think it is what I love most about the property industry, which brings me great joy and fulfilment. I believe that establishing yourself as a trusted advisor is essential. Clients should see you as their go-to contact, someone they can rely on for guidance and solutions. Secondly, being your authentic self is key. Authenticity builds trust. When clients perceive your sincerity, they’re more likely to turn to you for advice and support.
What advice would you give to someone starting a career in commercial real estate?
1. Embrace every opportunity wholeheartedly and step out of your comfort zone;
• Internally: Social events, committees, and learning and development opportunities – working at CBRE, you have so much at your fingertips – utilise what there is on offer to boost your personal brand and your career;
• Externally: Client events, industry events, and external learning and development.
2. Be a team player, embrace collaboration and effective communication.
3. Be bold and unafraid to voice your opinions.
4. Hustle, hustle, hustle.
5. Embrace adversity as an opportunity for growth. When faced with negative situations, reflect on them and extract valuable lessons. It is how you learn from adversity that will make you thrive.
6. Seek constructive feedback to gain insights and outside perspectives.
7. Positivity and a "can-do attitude" will take you places.
8. Find a good mentor, whether within or outside your organisation – or both!
Fraser McDonald
INDUSTRIAL & LOGISTICS, PROJECT MANAGEMENT
For our second edition of 'People Spotlight', we had the opportunity to interview Fraser McDonald, CBRE's National Delivery Director. Fraser plays a crucial role in overseeing the successful delivery of projects nationally.
Tell us about your journey in real estate and how you arrived at CBRE?
Upon graduating with a Bachelor's degree in Civil Engineering, I commenced my career with a Structural and Civil Engineering firm whilst finishing my degree. I have always been interested in the built-form and on completion of my degree, I decided to pivot into Construction Management, starting a full-time role working for a builder / developer in the I&L sector working on a range of projects in New South Wales, Victoria and Queensland. Then, I transitioned into a Development Management role, overseeing the development of master-planned estates primarily in Sydney, but also interstate, prior to moving to CBRE.
I’ve remained in the I&L space my entire career and see the ongoing opportunities as a key reason to specialise in this sector. A real draw card is the range of projects and clients within the sector, whether automated facilities riding the e-commerce boom, ‘heavier’ uses within manufacturing, or food-grade facilities for some of the largest tenants worldwide.
Given your experience, what are the current trends shaping the market?
The I&L sector has experienced its highest ever rental growth in the last few years, and with that we’ve seen quite varied strategic approaches by our clients, as an example, when it comes to new builds versus lease renewals. A new and more efficient facility which sees consolidation of business functions may be the preferred option in some cases, but conversely the ongoing uncertainties around interest rates and related economic pressures mean that some clients are opting to re-assess their business strategy in the short-term and stay put.
As this relates to Project Management specifically, our service offering has become a significant value-add for our clients, as we’re able to support both of the aforementioned strategic pathways. I see this dynamic as being a feature of most I&L property transactions moving forward, at least in the short-term, and I see CBRE as being very well placed to provide the ongoing critical support to ensure clients are making informed decisions.
What are some challenges you've encountered in the sector, and how have you overcome them?
A key ongoing challenge is communicating a complex project requirement between multiple parties and stakeholders, such that the finished product meets
the intent. Although the Australian I&L market is in most cases streamlined in terms of standard procedure, there are multiple inherent risks that ultimately remain until completion of the project. In the case of a prelease development, development of a robust Design Brief is a key first step to create alignment between parties as to project expectations. This then needs to continue through the stages of commercial and legal negotiations, design development and construction delivery oversight, to ensure project intent remains paramount.
How do you build and maintain strong client relationships?
Developing, and importantly maintaining client relationships is built on a strong track record of delivering the desired project outcome. It takes time to build rapport with a client, and more often than not this won’t be achieved in the first dealings having not demonstrated the value-add by example. It is, however, very rewarding consolidating a relationship throughout the course of a one to two year project, with the ultimate aim of continuing that through to subsequent projects.
The end-to end, integrated service offering remains a vital value-add for prelease development in particular. This comprises the stages of project inception, through to design development, construction of the facility, and hand-over to the client to commence operations, with the property advisory and project management teams remaining closely involved at all stages to ensure continuity in project understanding. Our extensive experience managing these types of projects in an integrated manner largely de-risks the project outcome, which is a key aim for all of our clients.
Where do you see the sector headed in the next five years, and how will CBRE adapt?
I think it’s inevitable that a ‘typical’ project today will progressively become more complex moving forward with the evolution of automated material handling solutions and the like. This leads to a greater focus on the integration of basebuild and fitout designs. In this regard, fire engineering as an example will continue to be a key consideration for these types of facilities. CBRE continues to adapt to meet this evolving requirement, through educating the broader team on considerations for both greenfield prelease options as well as existing builds.
Further, the I&L Occupier team is constantly seeking input from Subject Matter Experts that can ultimately bring value to the offering and help guide the client’s decisions as to the most appropriate solution.
SPOTLIGHT ON WORKPLACE
Balancing Act: Unlocking the Value of Hybrid Work for the 21st Century Workplace
Whilst many headlines might still be talking about the return-to-office – hybrid work is here to stay. For most companies in Australia and New Zealand, a full time return-to-office seems unlikely in the foreseeable future. Across the Asia Pacific region only 8% of major occupiers were full-time in the office last year, the vast majority are spending two to three days per week in office, with only 10% tracking attendance (CBRE Workplace and Occupancy Management, Benchmarking Data, 2023 for APAC Region). Even when we do see headlines about major companies mandating a return-to-office – it is not usually five days a week (our Workplace Consulting team have many clients with two or three days per week mandates or guidance).
Yet for all its ubiquitousness, hybrid work remains a polarising topic. Before the pandemic, who would have imagined we would spend so much time talking about where people work and for how many days. Why has hybrid become such a debated and contentious topic? Perhaps because it started out as the world’s greatest workplace experiment in the midst of a global health crisis, which meant that as an experiment, it was ad hoc, uncontrolled and difficult to track. Hybrid has opened up a new level of flexibility and choice to employees and many organisations support offering this choice to employees. Long before the pandemic and the invention of the term ‘hybrid’ work, autonomy has been demonstrated to be one the greatest sources of job satisfaction (examples include studies here and here), as well as potentially increasing chances of innovation. Whilst in 2024, many leaders see the value in this flexibility they are looking to ensure that autonomy and flexibility is not coming at the cost of the team or organisational culture and effectiveness.
Hybrid work did not come out of a vacuum prior to the pandemic. It is a natural evolution of changing technologies and ways of working – we didn’t work the same way in 2000 as in 2020, but many of our workplaces hadn’t changed all that much. The way we work was changing much faster than the office itself.
those with disabilities. For example, employees with disabilities were 11% more likely to prefer a hybrid work model than employees without disabilities. (Article by McKinsey).
However, for most roles today, work is not a solo sport but a team effort. Even for those who spend much of their time working independently, people benefit from face-to-face interactions be it for learning, building networks outside of our immediate teams or even individual mental health and well being. Since 2020, study after study has shown that only approximately 10% to 20% of people want a fully remote role, the vast majority want some in person work.
Even for fully remote organisations, face-to-face time for teams to connect is important. Atlassian who have been very publicly remote-first, still promote the benefits of gathering in person and have a new headquarters due to open in Sydney in 2027. Many other high profile remote-first companies (for example Dropbox, Github, Doist) also highlight that connecting in person (even if less frequently) is important to the way they function.
"Hybrid work offers a new level of flexibility and choice to employees. Autonomy has been shown to be a significant source of job satisfaction, and it can potentially enhance innovation."
Hybrid working in the regular world of 2024 should be nothing like the remote work experiences of 2020 and 2021, but nor should it simply be a return to outdated offices. Hybrid work and workplaces today need to have a more considered (if still experimental) approach to understanding 'why you have an office' and 'why you ask your employees to work there'.
It is also important to understand that not all companies need to be or will be hybrid – we will continue to see both remote-first and office-first organisations. How much time we spend in the office is becoming as much a part of a company culture as the location where we choose to have our office.
WHAT ARE THE BENEFITS OF A HYBRID MODEL?
Hybrid offers the best of both worlds right? We have all come to realise the answer is - sort of. Working from home offers employees choice and flexibility, gives people control over their environment and the ability to focus. It has resulted in a higher level of workforce participation for women, minorities and
It is now widely accepted that the idea of hybrid work offers organisations the opportunity to provide a flexible work environment which supports mental health and wellbeing, whilst at the same time, supporting face-to-face business relationship and functions - but is it actually working?
HOW CAN WE DO HYBRID BETTER?
We keep talking about hybrid because so many people feel it's not working. Leaders are concerned there is not enough time in the office, whilst individuals often want their in office time to be more meaningful.
The biggest challenge seems to be to get the right people together at the right times in order to enhance connection and collaboration, and to continue to build and strengthen culture in a hybrid world. Both of these challenges can be addressed by intentionality.
Culture isn’t just about spending time in the office, but critically about spending time together. Whilst culture can ‘just happen’ organically, when everyone is all together five days per week, this can be a culture that is bottom up rather than an intentional top down culture. Intentional top down culture, deliberately curating your culture, pairs well with intentional gathering and intentional ways of working. In the past, when everyone sat together in one place most of the time they worked, the intention wasn’t necessarily something leaders had to think about much – and it’s an area where leaders are frequently lacking experience, understanding, tools and the support needed to successfully work in intentional and dispersed ways.
When your hybrid ways of working focus on intention and the reasons why we do what we do, employees better understand why they are coming to the workplace. Coming to the workplace is less about 'when' than 'why'. 80% of employees say they want to come to the office to meet colleagues. (Article by Charter)
Continued over page.
A successful hybrid way of working is about much more than which days a week we come together. Hybrid is not just a binary in / out of office approach, not just a policy, but at its most successful - a way of working together more flexibility with processes that reflect today’s technology and do not rely only on physical presence to connect, communicate and share information. For younger Millennials and Gen Z, these tools are a way of life. Try telling someone under 35 that they have to meet in person to be friends or to create trust, while this age group is in fact, almost always the highest cohort attending the office in our client surveys - it’s not only for relationship building that they are choosing the office. It’s important to realise that face-to-face isn’t always better in every situation, but that in-office time should focus on where and when it is.
HOW DO WE KNOW WHICH MODEL IS RIGHT FOR OUR ORGANISATION?
Fully in-office, hybrid or remote? How many days a week should we be hybrid? Many companies are still struggling with how their ‘where’ you work policy or approach is working. Leaders are realising that a one-size-fits-all approach fits nobody – and that your approach has to be targeted to your organisation. ‘Where’ you work, cannot not be considered independently from ‘how’ you work, ‘who’ you work with and ‘what’ your work is. Many factors come into determining which model is right for your organisation. In larger organisations with more diverse teams and services – a one-size-fits-all approach likely won’t even suit all of your teams.
One of the key factors to consider is how dispersed your employees and your clients are across multiple locations. Distributed work is now the norm –according to a 2023 study by Atlassian, 99% of teams are now dispersed. While this might not be the case across smaller or more local organisations, the chances are high you are working with people who don’t sit with you – be they colleagues, collaborators or clients. When teams are distributed, a high proportion of work will remain virtual, and we all know no-one wants to come to the office to sit on video calls all day. However, there are still many organisations and industries where clients and teams are local, working closely together on time sensitive matters, and therefore, a higher proportion of office face-to-face time will be of higher value.
It is also important to consider how people across your organisation connect. More than ever we hear from business leaders that their number one priority is collaboration and cross-pollination throughout different parts of their business. The workplace plays a critical role in building these ties. Although this needs to be paired with intentional curation of time together and needs to be right sized to create vibrancy and the chance of people actually knowing each other and seeing one another.
Leaders need to consider their unique cultural factors, workplace goals and overall business strategy in determining their hybrid model. Whatever decision you make should be informed and data driven – understand why you have chosen the model you have, how that relates to your business and how you will monitor and measure success. Be prepared to experiment and respond to employee feedback and measurable outcomes – but don’t be changing your model too frequently. Employees arrange the rest of their lives around their working model and can be fatigued and stressed by constant change.
WHAT DOES HYBRID ACTUALLY MEAN FOR OUR WORKPLACE?
The office, as we largely know it today, was designed around a twentieth century production model. There were no smart phones, no computers and not even fax machines. How could we think that this concept is actually suited to the way we work in the twenty-first century? But what does a twenty-first century workplace actually need?
"Leaders recognise that a onesize-fits-all approach to remote, hybrid, or fully in-office work doesn’t suit every organisation. The decision on where employees work should consider how they work, who they collaborate with, and the nature of their tasks."
The hybrid workplace isn’t just about downsizing, but about creating vibrant workplaces with different types of spaces that allow your people to best perform at their jobs. This may mean goodbye to large open plan office layouts, replaced by more varied and flexible types and qualities of space. In today’s world of video calls and the future of voice activated assistant AI’s we need more enclosed space to be loud – or to be quiet. We need spaces that cater for our different environmental preference and the diversity of our workforce – be that age, neurodiversity or other universal accessible design factors. We need spaces to cater for different usage patterns throughout the week and across the lifespan of our tenancy. Why have we always accepted that our offices were only in use 40 or 50 hours a week, and now we question the fact they may only see peak usage for 16 to 24 hours per week? Workplaces were always under-utilised anyway.
CBRE has developed different planning models to illustrate alternative types of workplaces which bring people together for different reasons. These models consider not just the amount of time people come to the workplace but how people will work once they are there. Is your workplace focused on teamwork or individual work? Is working at a desk important – or is the workplace designed for larger collaborative events? Each organisation needs to determine which model (or combination of models) suits your teams and organisation, and your desired future culture and ways of working (refer page 18 of this CBRE report for further discussion).
Many of our clients are not necessarily downsizing but reconsidering how they use and allocate their space and how their space can work harder for them into the future – not just as a real estate decision – but how their workspace can contribute to their overall business strategy, their employee value proposition, and their overall success.
Let’s stop talking how many days a week we spend in the office – and start talking about how your organisation works in the twenty-first century.
Contact CBRE’s Workplace Consulting Team to start the discussion. We offer consulting services to support your future of work, including workplace strategy and experience, change management and occupancy management.
Investing in our Clients with 'Think Future' Event Series
CBRE is investing in the next generation of industry leaders with the Think Future' education series. This four-part series is designed to connect the brightest property talents with the right knowledge and network to become successful future leaders.
The first session, focused on 'The Build-to-Rent Revolution', was a great success. Shauny Bult and Alex Shaw, from CBRE's Capital Markets - Living Sectors team, showcased CBRE's Buildto-Rent expertise, broadening perspectives on the fastestgrowing living sector. Rachel Vincent, North Sydney's Managing Director, and State Director of NSW's Office Investor team, hosted the evening, with Andrew Kanabar from CBRE's Client Care also contributing to the discussion.
The next session in the series, 'The Future of Real Estate', will provide a unique opportunity to stay ahead of the ever-evolving real estate landscape and learn from CBRE's Office Research expert, Thomas Biglands. He will provide invaluable insights into the future of Australia's dynamic property market and facilitate a discussion with some of CBRE's emerging industry experts.
Thank you to the clients who nominated their emerging leaders and those who attended the first session. We'll see you at the next event, 'The Future of Real Estate'.
To learn more about the series, please contact Alex Parker or Kiera Fryar.
Kiera Fryar
Associate Director of Marketing, Pacific Advisory & Transaction Services, and Capital Markets kiera.fryar@cbre.com.au
THE OFFICE INVESTOR PERSPECTIVE
From Tim Courtnall
Head of Office Investor Leasing, Pacific +61 416 080 449
tim.courtnall@cbre.com
"Flight-to-quality is expected to continue as a significant trend, with businesses prioritising premium quality office space."
The Pacific office leasing market has had an extremely positive start to the year. In the first quarter, there was significant leasing activity across the Australian market, with a total leasing volume of 204,000 sqm transacted by our teams. This hive of activity across each key market benefited from the positive momentum and economic stability carried over from last year.
MARKET RESILIENCE AMID TURBULENCE
Despite the turbulence experienced over the last 12 months, the outlook for the financial markets remains surprisingly positive. Although decision-making has slowed in the previous two months, we expect stronger transaction volumes in the last quarter of 2024. In Australian CBD markets, rental growth in the first quarter has either remained stagnant or shown slight improvement, indicating signs of recovery in previously weaker markets, primarily non-core locations. Sydney has demonstrated resilience due to its diverse tenant demand, making it a key market for global companies. While the technology sector is slowly recovering, other sectors such as professional services, mining and government have demonstrated the need to occupy better-quality spaces.
STRATEGIES EMPLOYED BY ASTUTE LANDLORDS IN THIS DYNAMIC MARKET
Landlords in this market are more proactive than ever, investing considerable time, resources, and capital to enhance engagement and relationships with their customers. They are developing strong customer relations, implementing hotel-style concierge services, and improving their amenity offerings. Ultimately, this strengthens their national customer relationships and creates a benchmark for their portfolio. Across every major city in Australia and New Zealand, occupiers are prioritising their experience within office buildings, as it significantly influences their cultural identity, brand reputation and productivity.
EMERGING MEGA-TRENDS
Flight-to-quality is expected to continue as a significant trend due to the ongoing need for Premium grade office space. CBRE are seeing this mega-trend globally in cities like Singapore, Tokyo, London and New York.
Initially, this trend was led by the technology industry pre-COVID-19, relocating to the best buildings in every gateway city to attract the best talent. To be a market leader and magnet for exceptional talent, occupying the best office spaces in every gateway city is imperative. This mega-trend is undoubtedly here to stay.
As we head into the next development cycle, the focus in workplace design and office technology is noteworthy. Features like equality of natural light and improved air quality have become highly valued, alongside dedicated spaces for individual online meetings and focus work. As occupiers strategise for future workplaces, the challenge of attracting the next generation into the office necessitates greater creativity and productivity. This includes considerations for outdoor space onsite food and beverage amenities, wellness facilities, sustainable building features and operations, and building apps to empower the employee. CBRE is leading the connected technology innovation wave with the Host platform powered by VTS, an intuitive mobile application designed for corporate occupiers and institutional property investors to meet the rapidly growing demand for an enhanced experience in the workplace.
METRO - TRANSFORMING SYDNEY PRECINCTS
Sydney is renowned as a global gateway city but has long been constrained by its infrastructure. The impressive train networks of cities like London, New York, Singapore, and Tokyo have always been a source of envy for us here in Australia. In New South Wales, the Government is on track to spend $30 billion AUD by 2025 on infrastructure. By 2030, Sydney will have a network of four metro lines, 46 stations and 113km of new metro rail. This will transform the living experience, work pattern, and retail choice for Sydney siders and revolutionise the commercial landscape, especially in key precincts such as North Sydney and Sydney CBD. The Metro will enhance the attraction of these markets and make them even more palatable for many more organisations as occupiers are attracted to hubs with key transport links and rich amenity options. By the end of 2024, we anticipate we will have the infrastructure that firmly places us on the global map; we are excited to see the impact that this on our commercial market.
NSW Office Leasing Market: The Interplay of Demand and Innovation
The New South Wales market presents a fascinating dichotomy. While companies remain profitable mainly due to cost-cutting measures, a twotiered demand structure is emerging. Tenant preferences centre around location, favouring buildings with excellent transport links, amenities, and high-quality space. Businesses are willing to pay a premium for these features. The iconic Sydney Harbour serves as a significant drawcard for many occupiers.
However, a new category of demand is rising: the need for cost-effective, high-quality options. This shift reflects a cautious approach where companies carefully scrutinise expenses while prioritising quality.
As a result of these dynamics, many buildings are at risk of becoming obsolete. The challenge lies in upgrading these buildings to meet tenant expectations. Nevertheless, the New South Wales office market remains resilient, driven primarily by a reducing unemployment rate and migration growth. These factors contribute to increased demand for office space, creating opportunities for landlords and businesses.
Landlords are adopting innovative strategies to retain their representatives. They focus on meeting all tenant requirements within their buildings, creating vibrant, magnetic and engaging environments
that encourage occupancy and foster a critical mass of occupants. For buildings to achieve high occupancy rates and become preferred options, they must have attractive amenities and experiences to earn the commute from employees. The upcoming metro will reduce travel times for many commuters, and buildings in close proximity will benefit greatly. CBRE predicts that net lettable office areas may decrease by up to 10%, making way for additional tenant amenities such as wellness areas, co-working, food courts, rooftop event venues, gyms, and leisure facilities. Landlords are also curating meaningful tenant experiences, including Indigenous art displays, presentations, blood donation drives and services to support those in need.
Rachel Vincent Head of
QLD Office Leasing Market: Robust Fundamentals and Rental Growth
In Queensland, the office market is displaying robust fundamentals after a decade of relatively flat growth. As vacancy rates decrease, we anticipate a shift in market dynamics, with incentive pools tightening and rental growth continuing. This trend is already evident, as the Prime CBD market has experienced approximately 6% yearon-year rental growth since 2020, and some assets have had staggering 30% growth in just four years.
The limited supply entering the market has bolstered overall net absorption for both Brisbane CBD and inner-city markets. State and Federal Government agencies, along with large corporations — particularly in the mining and consultancy sectors — have contributed to this demand. In many cases, these decisions have led to upgrades in building quality as businesses align their long-term ESG targets and workplace strategies.
Proactive investment remains crucial for future-proofing buildings, especially secondary-grade assets. Landlords, particularly those with exposure to the Brisbane market over the past decade, understand the importance of creative and nimble deal-making. They invest in additional occupier amenities, ready-to-go products, and enhancements related to environmental, social, and governance activities. These 'one-percenters' — shared meeting room facilities, hotel-style end-of-trip amenities, public spaces and green areas, enhance the value proposition for tenants
and contribute to future take-up and rental growth.
Brisbane stands out due to various infrastructure projects accelerated by the upcoming 2032 Olympics, as well as exciting hospitality offerings like Queens Wharf and the River Quarter restaurant precinct. In the short to medium term, the CBD and inner-city precincts, like the Urban Renewal area, will benefit significantly from these projects, creating a unique and promising investment landscape.
Despite uncertain economic conditions and the State Government moving into ‘caretaker mode’ in 2024, the Brisbane office market is well positioned. Limited new development supply, significant interstate migration, and white-collar growth resulting from government-funded infrastructure and renewable energy projects contribute to a bright outlook for the next decade.
Coen Riddle
Head of QLD Office Investor +61 458 188 018 coen.riddle@cbre.com
RAINE SQUARE, PERTH - 7,500 SQM LEASED
WA Office Leasing Market: Thriving with Strong Tenant Growth and Resilient Resource Sector
The Perth office market has experienced a positive period of growth since the back end of COVID-19, with record levels of new enquiry and leasing transactions translating into positive rental growth. A surge of tenant expansion backed by high return-to-office rates has positioned Western Australia as one of the most robust office markets globally. The resilience of this market is largely due to the diversity of its resource sector which has historically relied on iron ore and natural gas sector investment. This has now matured and diversified into other commodities such as nickel, lithium, mineral sand and gold.
Over the next ten years, the main occupier preferences in Western Australia are expected to be high-quality buildings with floor-to-ceiling glass, strong ESG credentials, activated building lobbies with lots of amenity and advanced technology that integrates all these elements. The flight-to-quality will intensify in line with global offices market trends.
To meet these future trends, an office building needs to be a destination that offers a fantastic sense of community for the tenants. Savvy landlords in Western
The mega-trends in Western Australia revolve around the resource sector, strong population growth, and significant investment in the resource and infrastructure sectors. These trends are expected to drive demand for office space in the future, further bolstering the resilience of the office market in WA. 360 QUEEN STREET, BRISBANE - 1,642 SQM LEASED ON 9 YR TERM James Phelan
Australia are investing in lobby upgrades, brand new fitouts and features like endof-trip facilities to attract the best tenants on the longest leases possible.
Head of WA Office Investor +61 410 970 354 james.phelan@cbre.com
EVOLVING WORKFORCES
Best Flex Space Strategies for Higher Attendance & Property Values
Breaking Boundaries: Global Flex Space Titans
Transforming the Workday from 8 to 16 Hours.
Despite the ongoing evolution of hybrid work, there are clear signs that the return-to-office is continuing to improve across Australian CBDs in 2024. CBRE’s latest Australian CBD return-to-office Indicator report highlights this trend alongside another suggestion that employees are receiving subtle hints to attend the office more often.
This ultimately raises one of the more polarising questions: What’s in it for the employee?
One sector that’s pioneering ways to answer this is flex workspace. Some of the world’s leading flex spaces are now trialling solutions to turn the standard eight-hour office day into a sixteen hour business model, and we wanted to know how.
Helping to answer this crucial question around elevated guest experiences and future-proofing office buildings is Jaelle Ang, the CEO and founder of The Great Room by Industrious, a flexible workspace provider serving a roster of Fortune 1,000 enterprises, startups, industry thought leaders, and change-makers. Reinforcing these insights from the field is CBRE's Pacific Executive Managing Director of Property Management, Natalie Slessor.
DIFFERENCES BETWEEN FLEX SPACE, COWORKING SPACE AND THIRD SPACE
Before diving into the strategies, it’s first important to be aware of the differences between the workspaces that are often considered the same.
“In the industry, coworking and flex space are used interchangeably,” says Jaelle, “There are subtle distinctions though. Usually when people talk about coworking, it connotes community, networking and shared resources, making it very easy to find like-minded people in a supportive environment. Flex space prioritises flexibility, scalability, catering to a bit of a larger enterprise with fluctuating space requirements. But my thinking is that all of this is just going to be called working, because that's simply how people want to work. They want the people, they want the freedom to choose how, when, where, and who to work with.”
"A third space is more distinguishable", adds Natalie. "It's the spaces in between traditional office space. For coworking spaces, it could be the spaces in between retail and office spaces. Think of your office lobby or all the spaces that are not quite an office, but you might work in them - a lounge space, some meeting rooms that you may hire or use. There's immense potential in third space. It's the fabric of our cities in many cases, and the fabric of our office buildings. So, it’s slightly different to flex space, which might be a bit more of a leased or procured space, third space is that bit in between.”
HOW THE EXPERTS ARE ELEVATING WORKPLACE EXPERIENCE
Off the back of defining the third space is understanding its positive effects.
“It could be an amenity or a lounge base. A space where people work, play, connect, collaborate, eat, drink or socialise. It’s become a very important part of the work-life journey, because it isn't really about being behind the computer anymore,” says Jaelle, “It's knowing that here's the reason why you're going into the office. Compared to the other landlords and cities, Australian landlords are very intentional in creating beautiful third spaces and working with different partners to be able to achieve that to future-proof their buildings.”
Jaelle also emphasises the importance of creating spaces designed for those moments of spontaneous human interaction – a networking opportunity that isn’t possible when working from home.
“The value that casual bump-in conversations generate is real,” she says.
“The water cooler chat and all those little things add up, and sometimes they create the greatest value. The value isn't when you're behind a computer. That's the work we all need to do. But real high value work, it's when you're out and about.”
Another strategy used for elevating the workplace experience is placemaking.”
“Placemaking occurs when buildings are transformed into vibrant urban spaces that offer wellbeing, pleasure, and inspiration. Its success can be measured by improved lives, greater happiness, and when done successfully, an uplift in property values.”
HOW CAN THIS BENEFIT TODAY’S OFFICE BUILDINGS?
“I think it's going to be about that wider range of audience and ultimately the wider range of how we might attract community to our spaces” says Natalie, “We've had graffiti art exhibitions and performance art. The minute you come into the office, what we want this to be is a realisation of why you would go anywhere else? There is that element of surprise and delight as well as the understanding that this is just supporting my life and my work that I'm doing today. We can choose to work at home, learn at home and shop at home. Why don't we do everything at home?”
“The reason behind that answer to many people is because something unexpected and delightful might happen when we go into the office. I have greater value when I get there, it's a change of scene and I learn something. We're really trying to tap into that well.”
Jaelle agrees and says that her experience across Asia has allowed her to see what office workers want before providing it to them.
“People aren't going to the malls as much, so what do we do? We bring the mall to them. We bring the brands to them. It's all about the brand immersive experience. We can't quite be operating 24-hours like a hotel, but if we can turn the eight-hour office day into a 16-hour business model, from your first cup of cappuccino to your last nightcap, wouldn't that be interesting?”
Listen to the full podcast conversation on how flex working is helping to future proof office buildings.
"Demand for high-quality space and ongoing return-to-office adds pressure to the leasing market over the next two years."
The office leasing market is set to face significant pressure in the next two years, driven by the elevated demand for high-quality office space and the ongoing recovery of employees returning to the office. This trend is not limited to Sydney alone, but encompasses all markets.
A key factor to consider when analysing the state of the office leasing market is the delivery of new supply. In 2024, approximately 175,000 sqm of new office space will be added to Sydney CBD alone. While this may seem like a substantial amount, it is worth noting that 74% of this pipeline is already leased. The blending of strong leasing demand and an elevated construction pipeline will marginally increase vacancy rates in 2024. However, the lack of new supply in 2025 and 2026 is expected to result in decreasing vacancy rates from 2025 onwards.
According to CBRE's Return-to-Office Indicator, the gradual return of employees to the workplace will significantly shape the office leasing market. As more companies encourage their employees to return to the workplace, the demand for office space is expected to rise. This, coupled with the limited availability of new supply, will put further pressure on the market.
Tristan Gannan, CBRE's Director of Office Occupier for New South Wales also notes "The other thing that landlords need to consider is that real estate is very expensive, typically the second or third highest cost that an organisation will have and so the tenant is looking to get a return on that investment – on brand positioning, culture, attracting and retaining staff, promoting collaboration and innovation and so the best strategy for a landlord to adopt is how they can facilitate a tenant getting a return on that office."
Vacancy rates across Australian CBDs are projected to reach their peak in 2024 and then gradually return to current levels by the end of 2025. As the market tightens, rents are expected to accelerate, and incentives for leasing office space are likely to stabilise. Moreover, as the availability of office space in the CBD
shrinks and the rent differential between core and noncore locations widens, additional demand will also be felt in surrounding submarkets.
Australian Metro submarkets have also been heavily impacted by the flight-to-quality trend. Given the elevated demand for properties in core geographies, rental rates in the CBDs have accelerated at a quicker rate, widening the gap between CBD and Metro. Currently, the average rent in Sydney's CBD is nearly $440 per square metre higher than in the surrounding metro areas.
As this gap continues to widen, Metro submarkets will begin to see additional demand from tenants looking for value or more affordable accommodations. However, it is important to note that the majority of this demand will be for higher-end buildings, leading to further bifurcation between prime and secondary spaces.
Vacancy rates in prime buildings across metro submarkets are expected to increase by an average of 51 basis points (bps) in 2024, whereas secondary vacancy rates will increase by an average of 112 bps. Additionally, prime rental rates are forecasted to grow by an average of 1.7% through the end of 2024, while secondary rental rates will only grow by 1.3%.
The office leasing market is poised to experience increased pressure in the coming years. The combination of the elevated demand for high-quality office space, the ongoing recovery of employees returning to the office, and the limited availability of new supply will impact vacancy rates, rental rates, and incentives. Moreover, the flight-to-quality trend will lead to a widening gap between Australian CBD and Metro rental rates, with metro submarkets expected to see increased demand for higher-end buildings. As occupiers continue to navigate the return-tooffice process, the office leasing market will remain a dynamic and evolving landscape.
The Adelaide CBD office market presents a unique scenario. While the current vacancy rate of 19.3% might seem alarming, it’s essential to consider the underlying factors. Unlike the 1990s, when high vacancy rates reflected a weak economy, the current situation is driven by a surge in supply. Between 2015 and 2022, there was limited development, resulting in pent-up demand for high-quality office towers. Government and large corporate tenants now seek spaces that align with their workplace strategies and ESG requirements.
Over the past 24 months, the market has seen the addition of over 130,000 sqm of prime CBD office space. Remarkably, despite rents for these new towers being 40% higher than existing ‘Generation 1’ office stock, 95% of this space is already leased.
This strong demand reflects tenants’ urgency to achieve net-zero carbon goals and create attractive third spaces for talent retention and attraction. The demand is so robust that two more office towers, totalling 42,000 sqm, are under construction.
However, the influx of new stock has led to an excess of back-fill stock in the ‘Generation 1 A-Grade Office’ assets. Landlords are competing by initiating building refurbishment programs, offering amenities to rival the new assets and spec suites to attract smaller tenants. Consequently, we may see a decrease in primary grade vacancy and an increase in secondary vacancy over the next 24 months.
MELBOURNE GAINING MOMENTUM
THANKS TO RETURN-TO-WORK
Return-to-work in Melbourne has gained momentum; leasing activity has picked up, albeit it is still lagging behind other Australian markets. We have seen a mild softening of effective rents as the backfill supply outlook and current vacancy availability is giving more power to tenants. In line with new backfill supply coming to market and landlords facing current and upcoming vacancy, high incentives are still continuing to be offered. The fragmentation of the market in terms of what commercial terms can be achieved is more pronounced than ever, with the Eastern Core precinct likely to be sub 10% vacancy, whereas the rest of the market is experiencing mid-teens vacancy.
Moving forward, we expect modest growth for effective rents as the economy slowly readjusts, return-to-work gathers more momentum, and backfill supply subsides. Although vacancy will remain high, good-quality buildings will experience limited availability as organisations continue their flight-to-quality preferences; this will be particularly pronounced for larger occupiers. Vacancy across the CBD is forecast to peak in 2024, with a moderate increase forecasted in 2026 as the larger Dockland occupiers’ right size and current new office supply are delivered. Post 2026, as demand fundamentals remain in place, new office supply has slowed due to rising construction costs, limited pre-leasing activity, and rising financing costs. We expect to see declining vacancy, particularly in prime office stock.
PRIORITIES IN OFFICE RELOCATION: WHAT MATTERS TO NEW ZEALAND OCCUPIERS
In the New Zealand market, we are seeing occupiers with varying attendance rates in the office based on industry, organisational size, and where decision-making sits. Overall, this sits on average at 3.3 days per week, a slight increase from last year at 3.2 days per week, as detailed in CBRE New Zealand’s recent Occupier Survey. Similarly to last year, nearly two-thirds of respondents indicate that current hybrid practices won’t or are unlikely to change, albeit hybrid working norms are continuing to be fine-tuned to ensure efficiencies across the organisation remain front and centre. We are seeing occupiers remaining focused on enabling new work styles and providing effective workspaces for the full spectrum of activities that are undertaken in the office, and this is seen across a range of workspace options, from collaborative and communal / social spaces on one hand to quiet spaces and one to two person focus rooms on the other.
When considering an office relocation, a desire to upgrade accommodation quality remains a key priority, followed by floor configuration, access to public transport, and seismic performance (especially for those in Wellington), which remain the top priorities. While critical considerations for occupiers, we are also seeing the likes of end-of-trip, sustainability credentials and access to car parking as more of an expectation that these will be provided as part of the building's amenity rather than a requirement.
Zandra McGee
Director, Office Occupier, SA
+61 401 238 574
alexandra.mcgee@cbre.com
Diarmuid Killeen
Director, Office Occupier, VIC
+61 422 610 229
diarmuid.killeen@cbre.com
Bridget Fowler
National Director, Office Occupier, NZ
+64 92 523 567
bridget.fowler@cbre.co.nz
FUTURE CITIES
Smart, Responsible & Sustainable Workplaces
Sustainability, a dominant theme in today’s market, is gaining momentum due to climate change pressures and legislative impacts on business operations and asset development. At CBRE, we agree that more sustainable, better constructed, digitally enabled, and healthier places are our future.
The government’s strong commitment to climate action and the introduction of new regulations and reporting requirements have spurred a significant surge in sustainability-centric leasing choices by occupiers. This enables organisations to minimise their environmental impact and promote a culture of corporate responsibility. In response, property developers and asset owners are constructing green buildings, securing top sustainability ratings, creating access to outdoor space and retrofitting older assets to meet ambitious net-zero carbon emissions goals and secure occupiers.
A couple of CBRE's leasing appointments that are leading examples of adaptive reuse include QV1 in Perth and Quay Quarter Tower (QQT) in Sydney.
QV1 is an existing building from the early 1990s that has achieved climate-neutral certification.
QQT is another example of a market-leading refurbishment and what you can do when recycling a building instead of demolishing it. Cbus Property’s Melbourne development, 435 Bourke Street, will be one of the first office towers in the world to feature a large-scale solar skin facade, casting a spotlight on the future of sustainable technology. Lendlease’s Victoria Cross development in North Sydney will be a net-zero carbon precinct powered by 100% renewable electricity and targeting a Platinum WELL
and 6-Star Green Star rating. Mirvac’s Heritage Lanes building and precinct at 80 Ann Street in Brisbane is now the first in the world to achieve a 6-Star Green Star Building certified rating.
“Good ESG performance makes good business sense, and it is encouraging to see this change in our industry with most new buildings coming out of the ground aiming for 6-Stars, and occupiers pushing for better buildings as we redefine the role of the office in this post-pandemic world”, says Su-Fern Tan, CBRE's Head of ESG, Pacific.
We are seeing significant demand from tenants for net-zero carbon-ready offices, with occupiers both locally and globally striving to reach netzero deadlines, many of which fall in 2030. ESG criteria will have a stronger bearing on leasing decisions, with lease expiries playing a critical role in aligning tenancy decisions with net-zero carbon targets. Buildings with the strongest sustainability commitments, both environmental and social, will be the highest performing, lowest risk and most resilient in the market, which is now critical to investment returns. If you want to secure a premium tenant like a big bank or tech firm, you’ve got to offer a netzero-carbon building. We see this trend building momentum over the next three years as tenants start to understand their office requirements with confidence and can look ahead to 2030 and beyond.
“Competition to attract the best tenants is another driver, with our analysis showing a 12% spread between the occupancy rates of buildings with 4-Star NABERS Energy ratings compared to their 5.5-Star and 6-Star peers. That widens to 24% for
buildings rated 3-Star or less. We tend to see larger tenant’s more inclined to look at sustainability when looking at building options", says Sameer Chopra, CBRE's Head of Research, Pacific and ESG Asia Pacific.
Delivering a high-performance building not only improves our environment and assists in meeting ESG targets but also reduces costs for tenants by providing better energy efficiency and, therefore, lower operating costs per square metre. It can attract higher rental rates and property values as tenants and investors increasingly prioritise sustainability. As the world strives for a sustainable future, buildings that are not net-zero compliant may become less desirable and will face challenges in terms of marketability, valuations and financing.
“Through embracing ESG principles, you are increasing the value of your building, and mitigating future risks that come with climate change and regulatory requirements”, adds Su-Fern.
At CBRE, our goal is to achieve net-zero emissions by 2040. This objective reflects our unwavering commitment to environmental sustainability and responsible corporate citizenship towards achieving net-zero emissions by 2040. Overall, net-zero is not just an environmental imperative but also a smart business decision for the industry and for our clients. It presents an opportunity for CBRE, our clients and occupiers to form partnerships to not only reduce costs, attract talent and customers but all work together to deliver better buildings and better cities.
12% spread between the occupancy rates of buildings with 4-Star NABERS Energy ratings compared to their 5.5-Star and 6-Star peers. That widens to 24% for buildings rated 3-Star or less.
Su-Fern Tan
National Director, ESG, Pacific +61 493 225 222 su-fern.tan@cbre.com
Sameer Chopra
Head of Research, Pacific and ESG Asia Pacific
+61 422 242 830 sameer.chopra@cbre.com
Scan to find out how CBRE can help you achieve your ESG goals. FIND OUT MORE
PEOPLE SPOTLIGHT: OFFICE
Georgia Turner
OFFICE, INVESTOR LEASING
In our Office edition of 'People Spotlight', we feature Georgia Turner, the dynamic Associate Director from our Office Investor team. Georgia specialises in Adelaide's CBD, Fringe, and Metro markets.
Tell us about your journey in real estate and how you arrived at CBRE?
My journey in the real estate sector began at Ray White, where I worked in Residential Property Management for three and a half years while completing my university degree. During this time, I also worked on Telecommunication towers, negotiating leases on behalf of telcos like NBN, Telstra, Optus, and Vodafone. This role took me all over Australia, rolling out new towers and upgrades. Towards the end of my university degree, I had the opportunity to work with Colliers International through a work experience program, which led to a new role within their Office Investor team. After four rewarding years at Colliers International, I joined CBRE at the start of 2022.
What initially drew you to the office sector?
To be honest, I wasn’t overly familiar with this sector until I started working in it. What I love about it are the challenges and rewards that come with it. Every day is different in leasing, and I find immense satisfaction in helping clients reach their goals.
Given your experience, what are the current trends shaping the market in Adelaide?
In Adelaide, fitted space is very much in demand. Our market is predominantly a sub 500 sqm market, and tenants are always looking for fitted space. Spec suites are still very much in need, but with the current cost of construction, these are getting harder to justify financially. There’s also been a massive increase in outgoings of late. Adelaide used to be a gross rent market. However, we’re now seeing more and more properties convert to net rent to ensure the landlords are covered with these increases.
How do you foresee occupier needs evolving in the coming years, and how is CBRE positioned to address these changes?
Landlords need to provide spaces that entice employees to come in to the office. I believe the competition between what buildings can offer will be extremely
important. Technology also ties into this, all buildings need building apps where people can order coffee, lunch, book meeting spaces, and organise their dry cleaning. Property owners need to make it easy for people to come into work and it’s the extra amenities that will be key to this.
How do you build and maintain strong client relationships?
Adelaide is a small market and is very much built on relationships. Building a relationship with clients and earning their trust is a slow burn but it pays off once you do. It’s important to lean on colleagues to meet new people and stay connected.
Staying connected and front of mind with clients is key. I always discuss how CBRE can assist them further with our broad range of services. Working hard on their properties, staying up to date on the market, and constantly giving them insights helps build trust.
Where do you see the sector headed in the next five years, and how will CBRE adapt?
Technology is constantly evolving and how buildings operate, and how we as agents operate will need to stay in front of this. Using the technology to our full advantage will be key.
Offices are still going to be required and I see the hybrid model being the most popular for tenants and their companies. Collaboration is important and I think the better people work together, the more successful the business. The workplace will always be important and I think companies need to keep their employees needs front of mind when it comes to an office. Non refurbished stock will get left behind in the CBD.
What advice would you give to someone starting a career in commercial real estate?
Don’t give up! It may feel like it’s going so slow sometimes but once you start getting some experience under your belt, things really start to get going. It’s a challenging and rewarding career so put the hard work in and you’ll see the benefits.
Sunny Chen
OFFICE, OCCUPIER REPRESENTATION
Introducing Sunny Chen, an exceptional tenant representation professional hailing from Melbourne. Recognised as one of CBRE's finest, Sunny shines bright in her role.
Tell us about your journey in real estate and how you arrived at CBRE?
I started my real estate career with CBRE Auckland as a Database Manager, helping the office leasing team manage their leasing portfolio and database on a part-time basis. At the time, I was still completing my final year at university. After graduation, I was offer a role as an office leasing agent and took the opportunity, not knowing what I was doing or what was required.
After a year in office leasing, I decided I needed a more structured role and left to work at Fonterra (an Aotearoa New Zealand dairy co-operative) as an Analyst, and subsequently a Commercial Property Manager.
After four years, I finally realised the grind of property management was not my cup of tea, so I saught other opportunities within commercial real estate. Luckily an ex-colleague had been working in CBRE as a tenant representative, and was looking for another member to join the team, thus re-starting my CBRE journey.
Given your experience, what are the current trends shaping the market in your specific market?
As I specialise in the Fringe and Suburban markets in Melbourne, I am seeing a big shift to newer and better office options, with better amenities, commuter access and central location. There is a bigger focus on what the staff want, and the best location to attract talent.
How do you foresee occupier needs evolving in the coming years?
Occupiers will need to start embedding flexibility into their leases in order to adapt to the changing labour market due to the rise of AI and more remote working. We’re already anticipating these changes and are including expansion / contraction clauses and termination rights in to new leases negotiated on behalf of our occupiers.
Occupiers will have a stronger focus on sustainability credentials and ensuring the premises they occupy meets their existing and future ESG targets. CBRE has a dedicated ESG team that we can leverage to assist clients on their ESG journey.
How do you build and maintain strong client relationships?
Establish common ground, whether this be on a personal or professional level. Determine their preferred method of communication and frequency so that your approach is tailored to their preference and that no correspondence will go unmissed.
What advice would you give to someone starting a career in commercial real estate?
Commercial real estate is a lot of fun and a lot of hard work. If you don’t like what your doing, find a piece of commercial real estate that suits you, even if you have to trial and error every single role.
Inspace + CBRE: Transforming Leasing Experiences
CBRE is excited to announce a groundbreaking partnership with Inspace, aimed at revolutionising exclusive leasing appointments across Australia and New Zealand. This collaboration introduces an immersive and interactive mapping experience.
This cutting-edge visualisation tool is set to transform the leasing process for both landlords and occupiers. By offering a virtual viewing experience, it allows users to explore listings and availabilities in a more enriched and engaging manner.
The partnership has been initiated for a preliminary two-year period, focusing largely on the CBD markets in Australia and New Zealand. This means that CBRE's exclusive leasing appointments in these key locations will benefit from the innovative mapping experience provided by Inspace.
However, this is not the first time CBRE has ventured into this realm. Last year, the company developed a beta version of the tool specifically for the Brisbane CBD office leasing market. This served as a proof of concept, successfully demonstrating the potential and effectiveness of the technology.
With the beta version's success, CBRE now plans to expand the tool's usage beyond the Brisbane CBD market. We are aiming to integrate it into all parts of our leasing business, including the Retail and Industrial sectors.
The partnership with Inspace represents CBRE's commitment to innovation and staying at the forefront of the real estate industry. By leveraging technology, CBRE aims to provide our clients with unparalleled leasing experiences, ultimately streamlining the process and driving better outcomes for all parties involved.
As the partnership commences, there is much anticipation for the positive impact this interactive mapping tool will have on the leasing market in Australia and New Zealand. With plans for expansion into other sectors and markets, CBRE is poised to revolutionise the way real estate leasing is conducted, setting a new standard in the industry.
The AI Revolution: Redefining Australian Office Spaces CREATING RESILIENCE
The advent of Artificial Intelligence (AI) is set to dramatically reshape our world, with significant implications for the Australian office sector. AI has garnered significant momentum in recent years, with its potential to impact economies on an unprecedented scale. As AI technologies continue to mature and integrate into our daily lives, we can anticipate a transformative shift in industries and the creation of new markets.
The introduction of consumer-facing generative AI tools, coupled with advancements in AI algorithms, have propelled the conversation about AI into the mainstream. Tasks previously considered the exclusive domain of human intellect, such as design, are now being augmented by AI. This evolution is not limited to efficiency but extends to inspiring innovation by providing a collaborative platform where human creativity is complemented by AI’s analytical prowess.
AI is poised to revolutionise white-collar jobs, reshaping roles in sectors like finance, law, healthcare, design, and technology. By automating routine tasks, enabling data-driven decisionmaking, and enhancing productivity, AI is shifting job functions and creating new career paths. While AI streamlines workflows, it also necessitates new skills, leading to a dynamic shift in job functions.
Despite fears of massive job losses due to automation, many academics and Chief Information Officers argue that AI will liberate the workforce from mundane tasks, allowing employees to concentrate on more strategic and high-value activities. This shift could enhance job satisfaction and open up new opportunities for innovation and creativity. Moreover, AI-related automation is likely to touch two-thirds of occupations, serving as a complement to human workers rather than a replacement, leading to greater efficiency and productivity.
AI is also set to impact the office sector. It is expected to streamline cleaning and maintenance, which will benefit landlords and tenants in office buildings. AI is revolutionising office design by automating layout planning and furniture arrangement, optimising efficiency and comfort. It will enable real-time adaptation of workspaces, fostering collaboration and productivity, while also predicting future space requirements. Additionally, companies will need to invest in high-end technology infrastructure to harness AI’s full potential.
AI's role in advancing driverless car technology could lead to shorter commute times. This, in turn, could encourage higher office attendance, as employees often cite commute times as a key factor influencing their decision to work from home.
The integration of AI into the workplace is not without its challenges. For instance, generative AI can sometimes produce unreliable or incorrect results, necessitating a layer of human oversight for quality control. This underscores the importance of human judgment in the AI-assisted workplace.
In essence, AI’s potential to transform the office sector is vast. As it continues to evolve and integrate into every aspect of our lives, we can anticipate a dramatic shift in the way we work and interact with our environment. Yet, the successful integration of AI into the workplace will require careful planning and adaptation, underscoring the need for continued research and investment in this ground-breaking technology.
Tom Broderick Head of Office and Capital Markets Research, Australia
+61 430 405 910
tom.broderick@cbre.com.au
THE RETAIL INVESTOR PERSPECTIVE
From Sheree Griff
Head of Retail, Property Management and Leasing, Pacific
+61 407 870 805
sheree.griff@cbre.com
“Harnessing technology, prioritising sustainability, and putting the consumer first will ensure retailers remain relevant.”
The Retail Pacific market has had a positive start in 2024 especially in the Large Format Retail space. We are seeing the positioning of the traditional Large Format Retail move into a new asset class called 'lifestyle'. Demand for lifestyle assets is coming from tenants such as pharmaceutical, fresh food and fitness tenants. This is assisting the traditional LFR asset to extend its trade from the traditional weekend shopper to higher levels of shoppers during the week.
This year, we have been closely watching inflationary pressures and how this is impacting consumer spend. What has been most interesting is the spending behaviors of consumers and how they are adjusting their daily spend.
Overall, per capita spending growth is still trailing inflation and people continue to seek opportunities to curtail their spending. Not all shoppers feel the spending pressure. We saw an uptick in spend in travel and entertainment as well as fitness and wellness. Consumers are still determined to look good feel good.
Café and restaurants are still trading well however, have slowed over the last few months with 2% growth in sales from prior month. Fast food purchases were up 5% month-on-month which could be a result of consumers electing for a more affordable choice when electing not to cook at home.
Spending across the country moves at different speeds. Queensland has the strongest sales growth in the last quarter.
Occupancy levels have remained strong across the country, with Melbourne recording the lowest vacancy rate in the country at 7.37% in the CBD. The return to office and return of interstate travel has resulted in this confidence in Melbourne’s CBD market.
Sydney CBD has seen improvement in vacancy rates at 8.1% where we see openings of global tenants like Lego on Pitt Street Mall and RM Williams on George Street.
We are still seeing growth in luxury goods even in the current inflationary pressure environment. This increased spend is also attributed to the net inflows
of high-net-worth individuals coming into Australia. Sydney is home to 147,000 millionaires which is the eighth highest globally ahead of Hong Kong and Chicago. Melbourne is fifteenth in the world.
The luxury market is witnessing a consumer shift, with the rise in Millennials and Gen Z generations accounting for more than 50% of spend. These generations are shifting from fast fashion to luxury, placing value on higher priced fashion trends. With many of these consumers living at home longer, their extra disposable income is not being placed in the bank saving for a house, it is being placed on impulse purchases on high-end goods.
Social media platforms, Instagram and TikTok for example, have emerged as a popular marketing platform for luxury goods to captivate audiences. Video content and partnerships with celebrities and influencers are now the marketing platforms of choice for luxury brands.
Sustainability is not only for the landlord and their buildings. Young consumers place a strong importance on their purchasing choice on the sustainability of the product. It has driven a phenomenon in this space for quality products that will last and have minimal impact on the environment. The demand for sustainable and ethically produced goods has prompted brands to engage and actively adopt more sustainable practices and environmental initiatives.
The look ahead, we will lean into the strategic use of data which will underpin retailer strategies of where to locate their store, what stock to carry, and identify where their customers are and what they like to purchase. Data analytics enable us to understand our customer and optimise tenancy mix, enhance customer engagement, and improve tenant sales performance. By harnessing technology, prioritising sustainability, and ensuring we put the consumer first, retailers will remain resilient, adaptable and relevant in an everchanging market.
NSW Bayview Centre: Revitalising Retail in Warrawong
KING STREET AND NORTHCLIFFE DRIVE, WARRAWONG
Griffith Group, a property development and investment group, enlisted the services of CBRE as exclusive leasing agents to repurpose a former Bunnings building in Warrawong, a suburb of Woollongong, south of Sydney. The building, with a total gross floor area of 11,143 sqm, was divided into tenancies ranging from 714 to 2,343 sqm.
One of the main challenges that CBRE's Shane Cook and Ethan Schofield faced was that many retailers perceived the Wollongong and Shellharbour markets as a twostore market, with Warrawong not seen as an attractive option due to its location between the two regions. However, CBRE was able to effectively highlight the lack of available stock within the Wollongong market and emphasise that most of Warrawong's trade came from the north.
CBRE's proprietary demographic mapping software, Pathzz, was instrumental in highlighting the lack of available stock within the Wollongong market. It also
successfully demonstrated Warrawong's potential as a commercial hub, pulling most of its trade from the North. This detailed analysis and strategic insight paved the way for a remarkable transformation of the former Bunnings building into 'Bayview Centre'.
Shane and Ethan successfully negotiated new leases with several national large format retailers, including Beacon Lighting, Supercheap Auto, Pillow Talk, JB Hi-Fi Home, Autobarn, Road Tech Marine, Amart, and Dominos. These new leases resulted in a significant increase in rent compared to what Bunnings had previously been paying, revitalising the formerly vacant building.
The project, completed in late 2023, is a testament to the power of in-depth market analysis and strategic planning in overcoming perceived market limitations. It also underscores the pivotal role of location understanding in the world of retail leasing.
Shane Cook
+61 419 989 278
shane.cook@cbre.com.au
Ethan Schofield
+61 432 165 192
ethan.schofield@cbre.com
THE RETAIL OCCUPIER PERSPECTIVE
From Leif Olson
Head of Retail Occupier Services, Pacific
+61 409 748 136
leif.olson@cbre.com.au
“In 2024, global brands are focused on customer loyalty, innovation, flagship stores, and mainstream locations.”
In the dynamic world of commercial real estate, the retail sector stands out as a vibrant and ever-evolving domain. As brands expand their footprints across borders, Australia has become more of a target for international expansion.
THE ALLURE OF AUSTRALIA
Why is Australia a sought-after destination for international retailers? Let’s explore the factors that make it an attractive market:
• Educated consumers: Australians are welltravelled and discerning. They seek quality products and experiences, making them receptive to global brands.
• Robust tourism: Australia’s thriving tourism industry brings significant spending power. Tourists, both domestic and international, are contributing to the retail sector’s growth.
• Retail precincts: From bustling city centres to charming suburban hubs, Australia boasts excellent shopping precincts. These welldesigned spaces provide an ideal canvas for brands to showcase their offerings.
• Safety and stability: Australia’s stable government and strong economy create a secure environment for business operations.
• Economic fundamentals: With a resilient economy, Australia offers a solid foundation for retailers to thrive.
INTERNATIONAL BRANDS IN 2024
As we step into 2024, global brands are focusing on several key areas:
• Customer loyalty: Brands aim to connect deeply with consumers. Loyalty programs and personalised experiences are essential strategies.
• Innovation: Innovation remains critical, whether through store design or product offerings. Brands must stay ahead of trends and adapt swiftly.
• Flagship stores: Larger, statement flagship stores are gaining prominence. These iconic spaces serve as brand showcases.
• Mainstream locations: Luxury brands are shifting to more accessible locations, allowing them to create larger, impactful stores.
SECURING GLOBAL BRANDS: A LANDLORD’S PERSPECTIVE
While location remains crucial, landlords can take specific steps to attract global brands:
• Future-proofing assets: Flexibility is key. Landlords should design spaces that accommodate brand growth and changing needs.
• Understanding retail metrics: Knowing a retailer’s business metrics — foot traffic, sales per square metre, and customer demographics — help tailor offerings.
• Patience and timing: Approvals within global brands’ hierarchies take time. Start early and be patient during negotiations.
Australia’s retail sector is a dynamic and ever-evolving domain, attracting international retailers. Educated consumers, robust tourism, well-designed retail precincts, safety, and economic stability contribute to its allure. In 2024, global brands are focused on customer loyalty, innovation, flagship stores, and mainstream locations. Landlords play a crucial role by future-proofing assets, understanding retail metrics, practising patience, and providing expert representation to secure global brands.
INTELLIGENT INVESTMENT
Navigating the Landscape of Luxury Retail
Australia's luxury retail market stands out for its resilience, a testament to the blend of international luxury brands and homegrown labels. The major cities boast luxury retail precincts that are home to flagship stores of renowned brands like Louis Vuitton, Chanel, and Gucci, as well as high-end department stores.
According to a eport by Bain & Company, the global luxury retail market was valued at a staggering $2.45 trillion AUD in 2023. In Australia, the luxury retail trade reached a record of $6.2 billion AUD in the same year, with approximately 483 luxury retailers operating in the national market, both international and domestic brands. This data underscores the immense potential for growth in Australia's luxury retail sector.
The luxury retail sector in Australia is experiencing a significant shift in consumer preferences, particularly with the rise of the Millennials and Gen Z’s. Unlike their predecessors, these young consumers are placing a higher value on sustainability and quality, which is reflected in their choice of luxury goods that are designed to last. Cities such as Perth and Brisbane have seen an influx of prestigious brands driven by their growing population of high-net-worth individuals. Luxury precincts have sprung up in these cities, providing highend shopping experiences for the affluent clientele.
The clothing and footwear market has continued to dominate luxury retail spending, generating $4.3 billion AUD of total revenue in 2024 already. The luxury clothing sector across APAC is the second fastest-growing category, noting an 8.6% projected growth rate between 2023 to 2028. The younger demographic's preference for more premium and high-quality products has driven this growth.
The luxury jewellery and watch market has a significant 25% market share and recorded a total revenue of $1.5 billion AUD in 2024. Consumers increasingly perceive luxury watches and jewellery as investment pieces that can be passed down for generations, driving the growth of this market.
In Australia, Sydney and Melbourne’s International Airports have a strong luxury presence. These airports are major hubs for international flights, attracting affluent customers seeking premium shopping experiences. With Brisbane and Perth airports already having redevelopment plans, there is a prime opportunity for them to follow suit and develop a luxury precinct.
The strength of luxury brand performance and their ability to manipulate prices to maintain growth highlight the opportunity for retail asset owners to secure these quality types of tenants.
As Australia’s luxury retail market continues to thrive, it's crucial for investors to navigate this landscape intelligently. By understanding the market dynamics, demographic shifts, and consumer preferencesinvestors can make informed decisions that will drive their success in the luxury retail sector.
EXPLORE MORE
Scan to access more CBRE insights and research covering Retail and all sectors.
PEOPLE SPOTLIGHT: RETAIL
Jessica Fulton
SHOPPING CENTRES & RETAIL PROJECTS
As CBRE's Director of Shopping Centre and Retail Projects, Jessica Fulton is a formidable force in the retail industry. With expertise in all aspects of retail and project leasing, strategic network planning, and identifying potential opportunities, she is a true powerhouse. Additionally, her master planning skills for new projects are unparalleled.
Tell us about your journey in real estate and how you arrived at CBRE?
I began my career at the Deague Group, where I specialised in selling and leasing various commercial real estate assets. After accumulating over 15 years of experience across both landlord and agency roles, I felt compelled to seek out a new challenge and join a dynamic company like CBRE, known for setting industry standards and achieving remarkable results for their clients.
What initially drew you to the retail sector?
For me initially it was the ever changing market landscape coupled with my passion for shopping! The retail sector offers a dynamic environment, presenting continual opportunities to engage with diverse and exciting brands. Every day brings something new and exhilarating.
What are the trends shaping the market at the moment?
In Melbourne's retail leasing sector, some of the current trends include the rise of experiential retail spaces, increased demand for mixed-use developments, a focus on sustainability and technology integration, and adaptations to changing consumer behaviours, such as a preference for online shopping and conveniencedriven experiences.
How do you foresee occupier needs evolving in the coming years, and how is CBRE positioned to address these changes?
I believe retailers will continue to focus on providing seamless omni-channel experiences, blending physical and digital retail spaces. This may involve integrating technologies like augmented reality for virtual try-ons or interactive displays.
Retailers will continue to rely on data analytics to understand consumer behaviour and optimise their physical spaces accordingly. By using sensors to track foot traffic, heat mapping to identify popular areas, and AI algorithms to predict future trends.
I think that CBRE is well positioned to address these changes, we work closely with our clients, we continually monitor industry trends and innovate our leasing strategies to meet evolving occupier needs. We invest in technology to enhance the retail experience.
What are some challenges you've encountered in retail, and how have you overcome them?
Finding the right tenants can be a challenge, attracting and securing reliable tenants who align with the property’s vision and market demand can be difficult. I find that implementing a thorough tenant screening process, for example, financial background checks, analysis of business models and talking to other peers in the industry can also help identify suitable and unsuitable tenants.
Negotiating lease terms that satisfy both landlords and tenants can be complex, it's so important to have strong negotiation skills and understand both parties’ priorities and be willing to compromise on non-essential terms to secure the deal.
Economic downturns, changing consumer behaviours, and retail trends can affect demand for retail spaces. So I think that it is imperative to diversify the tenant mix to include recession-resistant businesses, such as essential services or experiential retailers. It's crucial to stay updated on market trends and adapt leasing strategies accordingly.
Are there specific emerging opportunities in the market that excite you?
Mixed-use developments are becoming increasingly popular. These developments create vibrant communities where people can live, work, and shop in the same area, enhancing convenience and fostering local economic growth. We are working with a lot of developers in this space right now. We love it.
Experiential retail is offering a unique experience beyond traditional shopping, we see this gaining traction. Pop-up shops, interactive stores and spaces designed for social media engagement. These experiences attract customers seeking more than just a transaction.
How do you build and maintain strong client relationships?
• To me personally, I believe that this is a combination of effective communication, being personable and really proactive. It’s so important to understand your client’s needs, listen and ensure that you maintain regular
communication. Provide market insights and always conduct transparent negotiations.
• If you have hit a roadblock try to come up with a solution. Always check in after the transaction.
• Be brave and solicit feedback from clients / landlords about their experience with you and ensure that you act upon it.
• Helping clients succeed beyond just leasing space can foster long-term partnerships.
• Lastly - maintain high standards of professionalism.
What value-add services do you believe are essential for today's clients?
To set yourself apart from the rest you need to be an expert and provide detailed market analysis, consumer trends, and demographic insights.
Offer assistance with store design, layout planning, and fitout services to help create a beautiful and efficient retail store.
Provide comprehensive lease negotiations, renewals, and compliance support.
Advise on the implementation of sustainable practices and certifications, to attract environmentally-conscious consumers and reduce operating costs.
Where do you see the retail sector headed in the next five years, and how does the market need to adapt?
I think that e-commerce will continue to dominate, driving a need for physical retail spaces to offer more than just products. This includes experiential retail, showrooms, and spaces where online orders can be picked up or returned. It is imprtant to adapt by offering more flexible leasing options for retailers that integrate online and offline channels. This could include shorter lease terms or adaptable spaces that can be reconfigured as needed.
Urbanisation and changing demographics, including the aging population and the rise of Gen Z, will influence retail needs. Younger generations have different shopping preferences and behaviours compared to older ones.
Adapt by tailoring retail spaces to cater to diverse demographic needs.
This includes considering accessibility for older customers and tech-savvy environments for younger consumers. Incorporating spaces that encourage community and social interaction will also be beneficial.
What advice would you give to someone starting a career in commercial real estate?
I believe that it is important to gain a solid understanding of the basics of commercial real estate, including property types, market analysis, finance and legal aspects.
Networking is crucial in commercial real estate. Attend industry events, join professional associations and connect with experienced professionals who can offer guidance and potential opportunities, this is priceless.
Success in commercial real estate takes time. Be prepared for a steep learning curve and initial challenges. Stay persistent, keep learning and continually adapt to changes in the market.
How can young professionals best position themselves for success in this competitive field?
Stay informed about market trends, economic indicators and regional developments regularly. Read industry publications, reports and news to understand the factors affecting commercial real estate.
Develop a niche – specialise in a particular sector, this can make you more valuable to employers and clients.
Maintain a high level of professionalism and integrity. Building a good reputation can lead to more opportunities through referrals and repeat business.
Development & Infrastructure: Changing the Landscape of our Cities
CBRE Development and Infrastructure (D&I) was established in 2021, following the acquisition of Thelem Consulting, a development advisory firm founded in 2014 by Justin Woodcock, our D&I National Director.
D&I provides a comprehensive range of advisory consulting services in strategy, feasibility, planning, procurement, delivery, and management of development and infrastructure assets. The business’ ethos is to assemble a team of trusted advisors who have the knowledge and experience to join a project at any stage of the development lifecycle to support and enhance client teams and their project needs. In addition, the team also provide advice to asset owners on financial structuring, portfolio optimisation and buy / hold / sell optioneering.
D&I has expanded its value add to clients by leveraging and collaborating with expertise of the wider CBRE organisation. This has resulted in a period of significant growth for the business unit, with a staff of 120 across New South Wales, Queensland, and Victoria. The diversity of skills and experience of the team allows D&I to offer expertise in a wide range of sectors including urban renewal and placemaking, commercial, residential, transport, health, utilities, social infrastructure, mixed use, sports / recreation, and retail.
This broad range of sectors and services is demonstrated through involvement in all development phases and typologies. CBRE D&I have supported some of Australia’s most significant city-changing developments.
1. Blackwattle Bay Precinct, NSW
The Blackwattle Bay Precinct, located on the western edge of Sydney, is going through a significant urban renewal process. The first phase of this redevelopment is the Sydney Fish Market, which has a total development value of nearly $1 billion AUD. The market will feature a 12,000 sqm retail precinct, basement car parking, auction operations, wholesale and retail tenancies, and significant upgrades to Bridge Road. CBRE has been acting as the Development and Project Manager since 2020, providing services including project and design management, and transaction management.
2. Martin Place Integrated Station, NSW
Macquarie Group and Lendlease have collaborated to develop an integrated station project at Martin Place, featuring an underground metro station, retail space, and two office towers. The North Tower, which will serve as Macquarie Group's global headquarters, is designed to achieve a 6-Star Green rating, be fully electrified, and offer 5G connectivity. CBRE has been providing client-side development and project management support services from initiation to delivery.
3. Gladstone Desalination for Hydrogen, QLD
Gladstone, an industrial coastal city in Central Queensland, is facing water supply challenges due to forecasted high demand, particularly from the emerging green hydrogen industry. CBRE is tasked with delivering the Detailed Business Case (DBC) by providing Business Case Management Services.
4. Waterloo Urban Renewal Project, NSW
Australia's largest urban renewal project, led by the NSW Department of Planning, Housing and Infrastructure, spans over 20 hectares and includes the development of an integrated Metro station and the transformation of an aging social housing estate. CBRE was appointed as Director, Integrated Projects, and Development Manager.
5. Perth Airport, WA
Perth Airport is planning a $2.5 billion AUD investment program over the next decade to accommodate growth and improve the travel experience by consolidating commercial air services into the Airport Central Precinct. CBRE prepared a VDD Report with a concept master plan for Perth Airport landholdings, including financial model inputs and assistance with the sale process.
6. La Trobe University Student Accommodation, Bendigo, VIC
La Trobe University plans to develop a 200+ bed Purpose Built Student Accommodation (PBSA) facility in Bendigo CBD to meet the forecasted demand and enrolments. CBRE has assisted La Trobe University with land analysis, site identification and acquisition options analysis, concept feasibility design management and planning authority coordination, and the preparation of a business case.
Optimising Procurement Strategies in a Competitive Market
The built-form sectors of social infrastructure, retail, commercial and residential development are primarily driven by attractive leasing pre-commitments or pre-sales, competitive debt and equity funding / financing arrangements, and procurement of a highly competitive delivery agreement with a suitable contractor. While the first two drivers are typically managed by Asset Developers with the help of specialist advisors, the third driver, procurement of competitive delivery agreements, is often overlooked due to a lack of sector-specific or market-wide expertise. This oversight can lead to sub-optimal outcomes and significant value loss for Asset Developers.
The need for a robust procurement strategy becomes even more critical in a heightened property market where the availability of quality contractors and sub-contractors is reduced, and their ability and appetite for managing and taking risk is diminished. With building project values now often exceeding $500 million AUD, it is essential to engage domain experts to prepare and implement comprehensive procurement strategies tailored to specific projects.
The current major project construction market in Sydney is characterised by an unprecedented high level of building work, significant resource constraints, pricing pressures, and a small number of companies dominating the nonresidential contracting market. There is also evidence of contractors seeking to secure larger, more demanding projects than their experience / capabilities and balance sheets permit, resulting in poor delivery outcomes and stretched financial and bonding capacities.
In such a market, Asset Developers are faced with a multitude of factors impacting procurement. Traditional processes and structures used for the procurement of contractors are proving ineffective. Decisions regarding procurement and forms of contract are subject to the complex interplay between design development and timing, buildability, planning consent timelines, and cost planning advice. The lack of sophistication or desire to undertake Market Sounding, interactively engaging with contractors, and heightening interest and competitive tension for upcoming projects can also lead to missed opportunities.
In the current market, a carefully considered and well-structured approach to developing a Procurement Strategy will improve the potential outcomes. Implementing a strategy effectively has even greater importance and can mean the difference between success and failure. A good procurement strategy needs to consider and adapt to numerous complex matters such as extent of due diligence and apportionment of risk, process for Design Management, novation and timing of value engineering, options for market sounding, raising market awareness and obtaining contractor input, appropriate commercial terms tailored to client, project and market appetite, and techniques to heighten competitive tension.
To ensure value for money in contractor procurement, it is essential that the preparation and implementation of the procurement strategy be carefully managed. This should be undertaken in close consultation with an expert in the field of major contractor procurement across the whole industry, with market-
wide visibility and sound commercial acumen. This experience and expertise is not commonly available in-house or from generalist Project Management consultancies.
The current market trends in asset development underscore the importance of a robust procurement strategy. By taking into account the complex interplay of various factors that affect procurement, and by leveraging the expertise of domain specialists, Asset Developers can maximise project returns and ensure project success.
ADVISORY & TRANSACTION SERVICES
Who We Are
INDUSTRIAL & LOGISTICS
Institutional and Middle markets
ANALYTICS
MARKET RESEARCH & INSIGHTS
SUPPLY CHAIN SOLUTIONS
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Institutional and middle markets
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Our trusted, tenured experts seamlessly collaborate to help clients connect to global capital and opportunities through a cohesive, cross-disciplinary service offering.
DEVELOPMENT & INFRASTRUCTURE
Advisory, design, engineering, program & construction management
TRANSACTION MANAGEMENT
Real estate portfolio management
LANDLORD REPRESENTATION
OCCUPIER REPRESENTATION
WORKPLACE CONSULTING
Workplace strategy, occupancy & change management
connect with us
Mark Curtain
Head of Advisory & Transaction Services, Pacific mark.curtain@cbre.com.au
Sarah Milne
General Manager, Advisory & Transaction Services, Pacific sarah.milne@cbre.com.au
Chris Cash
National Director, Industrial & Logistics Occupier Services, Pacific chris.cash@cbre.com.au
Tim Courtnall
Head of Office Investor Leasing, Pacific tim.courtnall@cbre.com
Sheree Griff
Head of Retail, Property Management and Leasing, Pacific sheree.griff@cbre.com
