By Tina Perinotto
23 June 2011 – Blackwater recycling and trigeneration plants are all very well, but what tenants want to know is will the building help make their tenants happier and more productive? More specifically, does it have as close to possible to 100 per cent fresh air?
According to head of tenant representation for Jones Lang LaSalle, Michael Greene, if the answer is no, then the negotiations on rent are going to be harder than they need to be, despite any profusion of green features.
Mr Greene was speaking to The Fifth Estate on release of a major outlook for leasing markets Australia wide, that pointed to Melbourne outperforming, Perth vacancy tightest in Australia, Sydney strengthening but Brisbane’s office market offering a “strong supply of new stock” and tenants a wide range of options.
According to Mr Greene major tenants and owners are now well aware of green buildings and are seeking them out, thanks to policies such as commercial building disclosure and an expected carbon price, but interestingly, he said, they are now starting to differentiate between various sustainability elements on offer.
“Some green buildings give more bang for their buck and what contributes more to tenants’ comfort is indoor environment, and air quality,” Mr Green said.
“You can deliver a six star Green Star or five star NABERS, but if it doesn’t have 100 per cent fresh air, the research suggests that the staff won’t be as productive.
“I’m not saying there is anything wrong with trigen or co-gen [gas supplied energy] and blackwater treatment – the tenants don’t see the impact of that – but they do see they benefit immediately from 100 per cent fresh air.”
That’s where the discussion ends up, Mr Greene said, and so too, “the discussion around costing”.
“It’s not star madness but sometimes the owners lose sight that the overwhelming reason to have a good building is to have corporations occupy the building and have their staff happy and productive.”
Mr Greene said that the greatest fresh air supply was generally supplied by chilled beams and underfloor air displacement, which tended to cost more than other airconditioning systems.
A reasonably high degree of fresh air could also be achieved through variable air volume systems.
“In discussion with engineers we debate the benefits and there are more people understanding this and the benefits and drawbacks of different systems.”
So what are the big trends on the horizon?
According to Mr Greene a clear signal is coming from early moves to more flexible work patterns – both in terms of hours and locations.
“What I think could well happen with this is that as projects decline in vacancy and there is a spike in rents, tenants who had considered implementing flexible work practices will accelerate their plans.”
By flexible, Mr Greene means working from home two days a week or starting late and finishing.
These patterns exist now as companies will start to support and educate staff on this this flexibility as their office space demands grow. “People will push it more,” he said.
“Once you take that Genie out of the bottle people won’t go back. It could lead to a long term drop off in demand,” Mr Greene said.
Following are highlights of Jones Lang LaSalle’s leasing market outlook:
Sydney – the balance is gradually shifting in favour of landlords as leasing activity increases on the back of growing business confidence. The vacancy rate fell to 7.3 per cent in Q1/2011, below the 10 year average of 8.3 per cent.
Increasing demand is expected to put upward pressure on rents while incentives are expected to be reduced over the next 12 months.
Gavin Martin, head of tenant representation, New South Wales said, “Tenants are faced with a market where sentiment is beginning to change and landlords are seeing a greater amount of activity and thus they are considering pushing back on the levels of incentives being offered in the market place.
“The dilemma for landlords is to secure this future income by offering a good incentive now or hoping that nearer the time they will be able to get a lower incentive. Tenants need to be aware of this, and the next six to 12 months will be critical to secure the best deals in the market place.”
Melbourne has already moved to a landlord-favourable market and is expected to remain that way until 2014. Melbourne continues to be the strongest leasing market in Australia with a vacancy rate of 5.7 per cent in Q1 and a prime grade vacancy rate of 3.8 per cent. Above trend rental growth is expected as the supply pipeline continues to be limited.
Michael Greene said, “Companies need to start reviewing their options early with tenants in excess of 3000 square metres needing to consider their options two years in advance and tenants over 8000 square metres up to three years in advance of expiry. This is to ensure a wider selection of development and existing building opportunities. Any tenant with an expiry in the immediate future should be looking at short term renewals until 2013/14 when we expect the market to become more balanced.”
Brisbane remains a tenant favourable market and is expected to become a balanced market next year. Leasing demand strengthened in Q1/2011 supported by increasing leasing activity in the resources and resources-related sectors.
Mr Greene said, “The impact of the floods earlier this year has created significant demand for short term fitted out office space which, coupled with strong growth in employment, has continued to place upward pressure on rents.”
Perth has also moved to a landlord-favourable market but will move back to a balanced market next year, in line with a rise in vacancy in 2012. Perth currently has the lowest vacancy rate of any Australian market at 5.6 per cent supported by the mining boom.
Andrew Campbell, head of tenant representation, Western Australia said, “The premium and A-grade markets are moving to an effective zero supply situation in the 1500 square metres plus range. Tenants reviewing their needs in 2011, and looking to address their five to 10 year plans, are incredibly limited for choice and in fact are having to strategically source opportunities rather than use traditional methods.”
Mr Greene said that, “the difficulties in obtaining finance continue to restrict new development and this combined with continued focus on reducing operating costs by companies does build a case for alternative workplace strategies including non-assigned desks and better access to technology within and outside the workplace.
“Rather than simply increasing space when headcount expands, it is expected that companies will find alternative strategies to accommodate this growth. One of the lessons of the GFC for corporates was to question the notion to automatically take on more space when headcount expands.
“But now post GFC, companies are again reassessing alternative workplace strategies, especially now that corporate real estate teams are required to do more with the same resources.
“A recent survey by Jones Lang LaSalle found that 20 per cent of planned workplace mobility programs were suspended or did not commence during the GFC as companies focused on the short-term priorities of dealing with the crisis.
“We now expect these plans to be dusted off and re-examined,” Mr Greene said.
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