Bayside Business District Market Report 2017

MARKET REPORT 2017 BAYSIDE BUSINESS DISTRICT

10 YEARS ON WHAT WE HAVE LEARNED AND THE FUTURE OPPORTUNITIES

REAL FACTS, REAL SOLUTIONS Commercial & Industrial Real Estate

Sales & Leasing

MOORABBIN \ 9559 3888 \ 358 SOUTH ROAD, VIC 3189

Property Management

nicholscrowder.com.au

WELCOME Over the past 10 years, the Bayside City Council and Nichols Crowder have been instrumental in the continual development and growth of the Bayside Business Employment Area, more often referred to as the Bayside Business District (BBD). The BBD is a name Nichols Crowder created as we felt it was more in tune with its commercial objectives.

Despite setbacks such as the Global Financial Crisis and mixed business conditions, the BBD has proven to be a major success for the Bayside region over the past decade.

Over 400 new businesses now operate in the BBD, creating over 1,300 jobs. This, along with the retention of key existing employers, is an indicator of the BBD’s ongoing success.

This report looks back over the past 10 years at how the BBD has developed and changed the business landscape in the Bayside area. It also shows how current developments are evolving and making the BBD even more dynamic.

Finally, the report discusses expected future changes, how these will impact the BBD over the next 10 years, and,

CONTENTS BACKGROUND PAGE 3 ZONINGS PAGE 4 PROPERTY USAGE RE-ALIGNMENT PAGE 5 LAND VALUE TRENDS PAGE 8 WHY SMALL IS GOOD PAGE 9 BUILDING TRENDS PAGE 10 FUTURE OPPORTUNITIES PAGE 11

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importantly, the future opportunities for businesses, investors and developers.

The BBD is a great model, which can be replicated in other locations involving not only suburbs needing regeneration, but larger single-ownership properties.

This is an exciting time as we feel the Council, Nichols Crowder and local businesses have only just scratched the surface of the many opportunities still ahead of us within the BBD. Matt Nichols \ Managing Director Nichols Crowder Moorabbin Pty Ltd

BAYSIDE BUSINESS DISTRICT

10 YEARS ON BACKGROUND Covering an area of over 100 hectares across parts of Sandringham, Cheltenham and Highett, the BBD is centred on the eastern part of Bay Road.

This unique pocket was a forgotten industrial precinct without the benefit of a freeway system, which was dominated by low, asbestos-roofed warehouses and medium to heavy manufacturing. With its superb location close to several prestigious Bayside suburbs and a clear social trend toward working closer to home, there were much better and higher potential uses.

The precinct also had some wonderful attributes to start with, including three adjoining golf courses, a golf driving range, two large indoor sporting complexes, and a major shopping centre close by.

Critically, the adjacent Bayside residential area contains key business and investor decision makers, which has contributed to the BBD’s growth.

A major rezoning occurred in 2006, mostly from Industrial 1 to Business 3 (later superseded to Commercial 2), and to Mixed Use Zoning on the fringes.

WHAT THE NEW ZONINGS ALLOWED

DEFINITIONS OF THE DIFFERENT ZONINGS IN BBD Industrial 1 Allows warehousing and heavy industry with office limitations.

Rezoning over 100 hectares from Industrial 1 to Commercial 2 opened up the possibilities for higher and better land uses.

It allowed for the development of industrial, showrooms, some retail uses, and offices up to four levels.

The mixed use re-zoning allowed for offices, retailing and upper-level high-density residential.

Commercial 2 (previously Business 3) Allows office, manufacturing, industrial, retail and warehousing up to four levels.

The concept was simple.

Turn under-utilised industrial land into a local business/ employment hub.

Mixed use Allows high-density residential, offices and retailing.

The local residents provide a well-educated employment base and business decision makers that service a wide range of business types, requiring flexible zoning.

BLUFF R D

BAY RD

RD

TALINGA

RD

RESERV

E RD

WANGA RA

TULIP S T

C2Z

Commercial 2

MUZ

Mixed Use

PARK R D

BBD outline indicative only

NICHOLS CROWDER BAYSIDE BUSINESS DISTRICT \ MARKET REPORT 2017

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BAYSIDE BUSINESS DISTRICT

10 YEARS ON USAGE RE-ALIGNMENT One of the driving forces behind the opening up of the land uses in the BBD was the manufacturing decline in Australia and across Victoria and Melbourne.

Australian Bureau of Statistics (ABS) data show that the manufacturing sector has declined steadily as a proportion of national GDP over the past 30 years. As Victoria has traditionally been more focused on manufacturing than most other states and territories, the decline in manufacturing has been more significant for workers and businesses in this state.

Scientific and Technical Services sector are both emerging in the BBD. We believe these sectors contain many new and exciting ‘digital businesses’ leading the demand for the new ‘high tech’ units comprising a combination of office / warehouse space.

Although industrial-zoned land typically moves toward warehousing uses, the BBD and its Bayside location is not close enough to a freeway system to support this natural progression. Therefore, the BBD needed to reinvent itself.

Over the last 10 years, the two key professional services growth areas identified across Victoria, namely the Finance and Insurance Services sector, and the Professional, SELECTED INDUSTRY SECTORS AS A SHARE OF GDP, 1986 TO 2016 14% 12% % of GDP

10% 8% 6% 4% 2% 0%

Financial and insurance services Mining Manufacturing Professional, scientific and technical services

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: ABS

BAY ROAD While it is now highly unlikely that Bay Road will be widened, changes in traffic types and flows have meant this is no longer considered to be a priority. Before the BBD was launched, truck and other heavy vehicles were common along Bay Road due to the heavy industry in the region. Large numbers of trucks would make regular deliveries and collect finished goods, causing congestion and traffic flow problems along Bay Road. However, with changes in the types of industries now manufacturing in the BBD, truck volumes have fallen significantly. This has resulted in Bay Road becoming less congested, despite projected increases in car volumes. However, we expect Bay Road will continue to emerge as a popular large showroom precinct, taking advantage of the increased car traffic.

NICHOLS CROWDER BAYSIDE BUSINESS DISTRICT \ MARKET REPORT 2017

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BAYSIDE BUSINESS DISTRICT

A UNIQUE POCKET

IN BAYSIDE

WAN GARA RD

TALI NGA RD

TUL IP S T

BAY RD RD E V ER RES

K C JA

PA RK RD

RD

LAND VALUES TRENDS Since its conception, land values in the BBD have increased strongly. In 2000, prior to the rezoning, the average price of land was around $120 per square metre. Initial growth to $400 per square metre was seen until 2006 in anticipation of the rezoning being announced.

land values of around $800 per square metre and even higher for smaller and Mixed Use Zoned sites.

More interestingly, if we compare commercial land values in all bayside locations, value-for-money in the BBD is considered extraordinary.

Around the rezoning announcement, there was an immediate spike to $600 per square metre, which was then subdued by the GFC in 2008.

The best example is comparing Martin Street Brighton, with a maximum of 3 levels selling for $6,600 per square metre, while the BBD sells for in excess of $600 per square metre with a 4 level height limit. Noting the different commercial 1 and 2 zonings, however, the BBD at around 10% of the price of some other Bayside locations is considered to be under-valued.

Persistent flat business conditions kept values consistent at $600 per square metre up to 2016, when the next construction phase moved into full swing. This has seen land values fluctuate from $700 to $1,200 per square metre as key sites are snapped up. As such we are seeing average

BBD LAND (CZ2) VALUES PER SQUARE METRE, 2000 TO 2017 $800 $700

$ Value

$600 $500 $400 $300 $200 $100 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Nichols Crowder Market Research

SUMMARY OF KEY BBD LAND SALES Pre 2005 2005 2005

COMMERCIAL 1 & 2 LAND SALES

$120 per m

2

Proposed rezoning announced

$200 per m

2

101 & 91-95 Tulip Street, Cheltenham

$6,000 - $6,500 psm

Hampton St, Hampton

$6,500 - $8,000 psm

Bay Road, Sandringham

$4,500 - $5,000 psm

BBD Cheltenham

$600

- $1,000 psm

Note: Variations occur due to height limits and size of land.

$400 per m

2005

Martin St, Brighton

2

300 Bay Road, Cheltenham

$600 per m

2011

2

300 Bay Road, Cheltenham

$600 per m

2015

2

18-20 George Street, Sandringham

NICHOLS CROWDER BAYSIDE BUSINESS DISTRICT \ MARKET REPORT 2017

Source: Nichols Crowder Market Research

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BAYSIDE BUSINESS DISTRICT

10 YEARS ON WHY SMALL IS GOOD As at June 2016, 88.3% of Australian businesses had between zero and four employees. These businesses are likely to employ around three-quarters of all Australian workers.

efficiencies. Governments are making it increasingly costly to employ people, compared with contractors that offer flexibility to companies should business conditions or the company needs change.

While we anticipate individual businesses will expand, this may not translate into employee growth within these individual firms. This is due to businesses increasingly outsourcing services, such as bookkeeping and accountancy; IT and computer support; and, website and social media marketing. In turn, however, this creates other new small businesses that provide these services.

While local government / councils are keen for larger employers to establish operations in their regions, we feel the real growth and future outlook is for strong small to medium-sized businesses. This is supported by ABS data, our sales and leasing market research, and client discussions on where business demand lies.

Hot-desking has become more common, with an increasing number of part-time staff sharing the same desk space over time. For example, one employee works Mondays and Wednesdays, while a different employee works Tuesdays and Thursdays.

Businesses are less likely to need dedicated meeting or boardroom spaces, as more meetings take place in local cafes and restaurants, or the shared boardroom facilities offered in larger buldings in the local area.

AMENITIES ARE FUNDAMENTAL In addition to the existing recreational amenities, Nichols Crowder identified early in the rezoning process that businesses and workers needed great supporting amenities, such as cafes and childcare services, to be attracted to the BBD. The BBD now has approximately six cafes/ eateries and four childcare operators that service local businesses and surrounding residential areas.

As such, less work space is required per employee by businesses today. Demand is greater for smaller areas of flexible design, such as 35 to 50sqm strata offices, or 100 to 200sqm warehouses for a range of uses, such as the storage of goods, or the packing of online orders.

We have also welcomed larger retailers, such as ALDI along Bay Road, as workers and local residents purchase groceries on their way home or during lunchtimes. We envisage this retail usage will continue with the opening of more retailers, eateries, liquor outlets, furniture / homewares showrooms and business services uses in the foreseeable future.

Ongoing trends suggest businesses will continue to outsource some functions to save money and improve

The addition of the new Southland Train Station will contribute further to the extensive amenities in the area.

NICHOLS CROWDER BAYSIDE BUSINESS DISTRICT \ MARKET REPORT 2017

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BUILDING TRENDS The first small industrial development in the BBD was 91 Tulip Street Sandringham, comprising 26 warehouses of around 200sqm, selling for an average of $300,000. The preferred size is now 100 to 150sqm, which now sell for approximately $350,000 to $400,000. Small industrial values have increased 126% over the past decade, and have a consistently low vacancy rate of less than 1%, along with almost 100% selling prior to construction completion.

One of the most significant new building trends has been the combining of ‘amenities’ within commercial developments.

Alongside the original business parks of 10 to 20 warehouses are now hybrid developments comprising childcare centres, personal storage units with warehouses, and high tech office/ warehouse units. These complexes, such as 18-20 George Street, Sandringham, will be a hive of activity with business and childcare services often supporting each other.

The small office sector also has low vacancy rates, assisted by no major new construction for 10 years. Further, there has been an increase of 50% in rentals, assisted by the lack of supply.

The Mixed Use component of the BBD was visionary, with the continuing residential property boom and change in consumer demand to apartment living. With a total of 800 apartments on Bay Road (near Bluff Road) alone, there are now thousands of people living on the edges of the BBD. This further adds to the vibrancy and supply of local, highly skilled employees to local businesses.

Larger industrial premises have been in great demand, mostly from owner occupiers, as these are becoming a limited resource. The leasing market has been weak, mainly due to low interest rates and increased demand from owner occupiers. Many business owners are attracted to the BBD location being close to home, underlying land values, and future development opportunities.

A decade ago, we did not envisage such integrated developments, nor did we think we would be placing ALDI and other retailers on Bay Road. These are all welcome trends, which we see continuing to add to the amenity and community of the BBD.

NICHOLS CROWDER BAYSIDE BUSINESS DISTRICT \ MARKET REPORT 2017

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BAYSIDE BUSINESS DISTRICT

10 YEARS ON FUTURE OPPORTUNITIES LAND

SMALL INDUSTRIAL

There is an old real estate saying that “land appreciates and buildings depreciate”. The fact is that land in the BBD is still comparatively ‘under-valued’ and this creates the best underlying opportunities for businesses, investors and developers alike.

Small industrial will remain strong with the digital business explosion still in its infancy, making building design flexibility the key. However, as increasing land values will impact the development viability of small industrial sites, these types of units will need to be sold at higher prices.

Keep in mind Nichols Crowder estimates that only 25% of the commercial zoned land in the BBD has been re-developed. In fact, there is expected to be sufficient supply of redevelopment land for the next 15 to 20 years.

As such, smaller office / warehouses, with flexibility to be a business or to store a few personal items (ie; car, jet ski or trailer), will grow in popularity.

SMALL OFFICES

RETAIL

Small office space has very limited supply. With ongoing outsourcing trends, small businesses will tend to remain with fewer employees, despite growing in size and profitability. As these businesses grow, they will outsource aspects of their business, creating other small business opportunities.

Retail showroom businesses are keen to take advantage of Bayside residents’ buying power. With Bay Road’s ideal high-exposure location connecting Beach Road to Nepean Highway, this trend is set to continue.

RESIDENTIAL CAFE AND EATERIES Quality eateries / cafes are limited and we expect to see more of them opening up soon in the BBD. This trend is consistent with ABS statistics showing this as a growth industry, further supported by lifestyle changes and an increase in the number of residential dwellings in the region.

The western end of the BBD has received an enormous amount of investment with the emergence of residential towers in the Mixed Use areas. Moving forward, we expect to see the eastern end gain momentum. With the opening of the new Southland Train Station, Council is open to more high-density residential buildings between the BBD and Nepean Hwy.

IN SUMMARY For business owners, local investors and developers alike, we believe we are still in the ‘early days’ of the exciting re-birth of the Bayside Business District. A decade ago, the BBD looked exciting, but it was considered “pioneering”. Now, with even more clarity and certainty, the pioneering phase will be superceeded by combinations of ‘consolidation phase and experimental phase’ in line with digital distribution. Therefore the next 10 years suggests the best is yet to come for the Bayside Business District.

NICHOLS CROWDER BAYSIDE BUSINESS DISTRICT \ MARKET REPORT 2017

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Caulfield

Mt Waverley

Elsternwick Caulfield South

Mulgrave

Oakleigh

Ormond

Brighton

Mckinnon

Springvale

Bentleigh East

Bentleigh

Oakleigh South

Hampton

Sandringham

Black Rock

Highett

Clayton

Moorabbin Dingley

Cheltenham

Beaumaris

Mentone

Moorabbin Airport

Parkdale

Dingley Village

Braeside Keysborough

Mordiallic

Dandenong

Edithvale Chelsea

Bangholme

Bonbeach Patterson Lakes

Nichols Crowder has played a key role in promoting the Bayside Business District over the past decade. Our company has provided advice and consultancy services to landlords and developers looking to maximise their returns and improve their properties.

Nichols Crowder is proud of its role in supporting the Bayside City Council in its vision to enhance the region, and looks forward to continuing this work in future years.

Carrum

Seaford Pakenham

Carrum Downs Cranbourne Frankston

For more information, please contact us.

Frankston South Mt Eliza

Mornington

Somerville

Tyabb

In affiliation with Mt Martha

Dromana

Commercial & Industrial Real Estate

Sales & Leasing

MOORABBIN \ 9559 3888 \ 358 SOUTH ROAD, VIC 3189 Dromana CARRUM DOWNS \ 9775 1535 \ 1 COLEMANS ROAD, VIC 3201

Property Management

nicholscrowder.com.au

All information and sizes are approximate. Particulars herein are for information only and do not constitute any representation by the owner or agent. Information in this report should not be considered as financial advice. Interested parties should make their own enquiries. If you do not wish to receive further information please contact our privacy officer. Map not to scale.