Office demand strongest among expanding government departments

One of Australia’s largest office landlords has told the Citi Australia and New Zealand Investment Conference that government departments are driving 75 per cent of leasing interest across its portfolio.

Carmel Hourigan, office chief executive officer at Charter Hall, which has been increasing its presence in Canberra, said the private sector is less certain about the future space it requires.

“We’ve been analysing big requests for proposals above the 5000 square metre mark and at the moment we’re at 800,000 sq m nationally,” Ms Hourigan said

“The public sector for us is one of the key drivers in terms of tenant demand. If I was to look at that RFI (request for information) list I would say three-quarters of it would be the public sector.

“Some of it is a surprise in areas like Defence, for example, where we’ve seen some really big requirements.”

Services Australia, Health, the Australian Taxation Office and Australian Federal Police are also expanding.

Private sector demand is more sedate but, like government, is asking the big question “How do we get people back to the office?” Ms Hourigan said.

Richard Pearce, director at Cushman and Wakefield, said it has been hard to get people over the line on deals.

“We’re spending a lot of time advising, bringing information to the table, a lot of hand-holding, working through the process,” he said.

Mr Pearce said the tech sector is most aggressively looking for more space while more traditional CBD businesses are still debating office staffing levels.

“The big end of town, finance, insurance and those sorts of groups, they are definitely taking time while some are trying to shed or better utilise space,” he said.

“In that end of the market, we’re definitely finding that a lot of groups don’t believe they’ll return to a full [office] workforce.

“It’s all about ‘what can we do to make it different, what will entice them back?’”

Despite the uncertainty over future office occupancy levels, Ms Hourigan and Ruban Kaneshamoorthy, head of investments at Brookfield, believe prime office values will stay high because of robust investor demand, particularly from international buyers.

“We still look really attractive globally in terms of yield spread, we’ve a long way to go yet before that becomes a problem,” Ms Hourigan said.

She added: “We think there’s going to be a real differentiation in the market between long WALE (weighted average lease expiry) and short WALE stock.

“In this environment what we’re seeing in terms of capital values is that there’s big demand for that longer-dated product and that’s where you’ll see more cap rate compression.”

She said anything with a WALE of more than seven years has been selling for significantly higher prices.

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