News & Discussion: CBD Real Estate & Market Conditions

[UrbanSG]

This Origin Energy space requirement has been hanging around for a couple of years now. Obviously the GFC has delayed the decision.

Last we heard CC8 and the former Tesltra Exchange site on Franklin Street were in the running for this deal. It will be interesting to see where Origin finally decides to go.

I don't care too much for Aurora West. I want something that improves Franklin Street (which is shocking for such a prime inner CBD street) or at least has a decent impact on our skyline. All as Aurora West will do is cover up the ugly blank wall created by Aurora East, it won't be very noticable outside of the immediate locality.

[Shuz]

I'm just speaking from a realistic perspective; given current economic conditions.

Prior to the GFC, they surely would've signed up to being a tenant in either 67 Franklin or CC8. But I'm a bit skeptical now; with banks being overtly stringent to finance new developments; they would rather see to a safe investment (Aurora) with such a significant pre-commitment, than to finance a development which would be built in the hope that someone else would also commit.

As far as we all know, there are very few companies (Adelaide Bank only comes to mind at the moment, and even they've got their own agenda for their premises in Hindmarsh Square) looking to expand, relocate, whatever their situation - a moderate, let alone substantial requirement of tenancy in a new or existing building.

Expect to see a lot more projects put on hold, or cancelled.

[UrbanSG]

CC8 was reduced by 2 floors, which is obviously a sign of the tough conditions and trying to secure financing by limiting excess vacant space once their development is completed.

It is highly likely the CC8 and Franklin Street towers have other small to mid size companies willing to sign up along with a larger deal like Origin to create a larger amount of pre-leasing to secure financing. However these smaller deals depend on a larger tenant like Origin. Whichever tower doesn't secure the deal will either be scrapped or downsized considerably.

We should all be well aware by now that a large number of Adelaide's proposed and approved office towers will not go ahead. That was obvious even back in late 07, early 08 when the first signs of a serious economic downturn were unfolding.

[UrbanSG]

From the Property Council SA Division website http://www.propertyoz.com.au/SA/Division/Default.aspx This site also contains further analysis, our frame office market actually decreased to a new record low.

The vacancy rate is obviously increasing but not as bad as other markets at this stage (eg perth from near 1% to 8%). This thread title also needs to be changed maybe just to Adelaide Office Market Discussion?

Market Analysis & Commentary

Office vacancy figures revealed in today’s Property Council Office Market Report provide a clear demonstration that the economic downturn is starting to bite in South Australia.

The report shows an increase in office vacancy from 3.4 per cent in January to 5.5 per cent in July in Adelaide’s Core Office Market.

Property Council of Australia (SA Division) Executive Director Nathan Paine says while this increase was expected, the South Australian market remains the second tightest in the nation and vacancies didn’t blow out to the same extent as other states.

“These results are not overly surprising and were expected in the face of the economic conditions.”

“Adelaide’s Core vacancy has increased, but in historical terms 5.5 percent is still very low in the range for this market,” Paine says.

“Clearly we have been affected by the Global Financial Crisis, however the impact has been felt less in South Australia than in other states due to limited redundancies.”

Paine says the biggest question mark now hovers over the capacity of the South Australian economy to absorb new stock additions in the order of 33,000 square metres over the next 18 months.

The big surprise in today’s figures was the decrease in the vacancy rate for the Adelaide Frame market, which plummeted to a record low of 2.3 per cent. Paine says this is a positive sign.

“This is a solid result and can be partially attributed to the extension of the tramline opening up new opportunities in the south of Adelaide’s CBD,” Paine says.

“I have no doubt that once credit frees up and the economy starts to grow strongly again that Adelaide’s office market will tighten further with new tenants entering the market to exploit our opportunities and natural advantages in defence, resources, education export and renewable technologies.”

[PropertyozSA]

S-A Members

The State Government has asked the Property Council to put together a submission on the barriers and solutions to getting more student accomodation developed in the CBD. This is clearly an important issue for the students, for the city and for the State's economy.

I have identified a number of barriers including land tax, council rates, lack of development plan consideration of student accomodation and the failure of the Universities to take more headleases over these developments, but I thought I would tap into the biggest and best forum on development and throw it open to you guys.

So if you have any ideas on how we should promote student accomodation developments, I would love to hear them as I believe this is an underinvested asset class and has great potential for our city's future.

Cheers

Nathan
http://www.propertyoz.com.au
http://twitter.com/PropertyozSA

[Wayno]

hi nathan, one of the cost barriers might be the ACC imposed height restrictions. Extra height means less cost per apartment. Have you a copy of our recent submission to the ACC requesting building height restrictions be relaxed in many areas of the CBD? I could email a copy across to you.

As a side note, extra height also means more architectural merit can be applied to new developments without eroding profit levels - win win.

[PropertyozSA]

Wayno - thanks for the suggestion - I will certainly pick that up. I haven't seen the submission, could you email it to me at npaine@propertyoz.com.au?

Ta

Nathan

[jk1237]

location could be better looked at, but ofcourse it depends on available land. For example, Ipad on Waymouth Street is in the middle of nowhere. Theres hardly any shops or direct PT to any of the campuses around Ipad. If theres one area that student apartments would be in high demand its around the central markets. Maybe 1 of the future Balfours towers could be a student tower considering the global economic conditions will prob halt the next stages of the current proposal.

[ghs]

With the exception of Friday nights the CBD is pretty quiet at night time.
I think that CBD student accommodation is a good thing as it increases the vibrancy of the city at night.
There's a lot of students who go to the city during the day but then just about all of them go home to the
suburbs at night time.

[AtD]

You could start here:
http://www.realcommercial.com.au/cgi-bi ... 1252419118


But seriously, I think the question shouldn't be "how to encourage more CBD student accommodation" - instead it should be "why isn't there more CBD student accommodation?"

I would say that in this climate, funding is the issue. Where are the investors? Can the government bridge the gap?

I think you hit the nail on the head when you mentioned headleases. That'd remove a large amount of speculative risk from the developer and keep the banks happy. I think if you crack that nut, you'll see a lot of the proposals in the pipeline accelerate.

[Will]

Any of you who are or have been a student will understand that one of the biggest challenges facing students is that of finances. Life as a student is a constant juggle between the competing demands of the cost of text books, transport, accomodation and having a life and the often emagre income with which students have to live on.

As such, one if not the biggest advantage that Adelaide has in the field is our lower cost of living. One of the challneges we face as a smaller city is that we are not as well known in the outside world compared to big cities like Sydeny or Melbourne. Thus, if it were not for our lower cost of living, we would unfortunately see our international student numbers drop as the universities interstate are as good as the ones here.

As such, we must do everything in our power to retain our cost competitiveness in this field.

And by everything, I mean everything. Even if this includes looking at solutions which are not inspired by neo-liberal ideology.

I have never believed that the market can solve all of our problems. Like it or not, governemnt intervention is sometimes required where the market is failing.

Currently because of the difficulty in obtaining credit, the demand for inner city student accomodation is far outpacing supply. This is having the unfortunate consequence of pushing up rents and thus eroding our cost-competitiveness.

A potential solution to this problem, is for the state governemnt to intervene and act as a guarantor for student accomodation projects. The stability offered by the state government would ease the minds of the banks and allow credit to flow.

Think of it like the nationalisation of ETSA which ensured a cheap power supply and led to the creation of thousands of manufacturing jobs in SA in the 50s.

However, I realsie that without regulation such a scheme would flood the market and cause an oversupply. Thus to avoid this, whilst at the same time ensuring that rents for students are kept as low as possible, I suggest a quota system in which the governemnt stipulates that it will act as a gurantor for say 2000 student apartments per year. Each proposal would thus have to be assessed against others seeking state governemnt backing. Following a transparent process, the state government would thus select the projects for which it will act as a gurantor. Ideally those proposals showing the highest energy efficiency, architectural merit and student ammenity would be those selected.

Those projects not selected would thus be left to live or die according to the market.

In addition, another barrier I see are the restrictive height restrictions of the ACC. Keeping an education theme in mind, the current height restrictions are like telling your child "I want you to be the best you can be, but I don't want you to go to university".

[AtD]

^^ Will, having Universities commit to individual headleases off the plan would have the same outcome.

As soon as you started talking about 'transparent government assesment' and quotas, my mind pictured an office of taxpayer funded bureaucrats agonizing over the positions of power-points in various apartments in between long lunches and "team building exercises" at the golf course. The needs of the students? They don't vote!

You'll also need to consider the consequences of transferring financial risk onto the taxpayer.

The individual Universities would be better suited to act as 'guarantors by another name' by committing to headleases. The universities would have a better idea of student needs than a bureaucracy and would be better able match leases with their own expansion plans.

I would suspect the limiting factor would be the finances of the universities. I think this would be a better place for government intervention.

[Wayno]

Re. this article from the Advertiser, perhaps the ACCs Dev Plan needs adjustment to allow smaller sized student apartments. I'm not necessarily advocating a 2br apartments of 30sqm, but less than the ACCs minimum limit of 75sqm may be appropriate.

Student ghetto rejected
A STUDENT housing development planned for the city's west has been refused approval because many of its apartments are less than half the required size.

Adelaide City Council's Development Assessment Panel refused consent for the project at its Monday night meeting, citing the size of the apartments and lack of open space and windows as reasons.

The House Brothers' proposal for the corner of Franklin and Gray streets features 24 two-bedroom and one-bedroom student apartments in a five-storey building.

The floor area of the two-bedroom apartments is just 30sq m – less than half the 75sq m requirement outlined in the city's development standards.

The one-bedroom apartments have a floor space of just 25sq m, only half the 50sq m limit the plan prescribes. The private open space provided for each apartment is 2.4sq m to 6.48sq m and also falls well below the minimum acceptable range of 8-11sq m.

Eight student accommodation complexes providing rooms for 1643 students have been built across the city since 2001.

A recent Education Adelaide study found more than 3050 international students were living in the Adelaide City Council area, an increase of 39.3 per cent since 2006.

Development Assessment Panel member councillors Anne Moran and David Plumridge were told to "temper" their language by the panel's presiding member Shanti Ditter after they described the complex as "the ghettos or slums of the future" and "suicide boxes".

"I just find this kind of accommodation very, very inferior," Mr Plumridge told the meeting. "The provision of accommodation is below a level I think is appropriate."

Ms Moran argued the same housing standards should apply for student accommodation as that applied to any other residential development in the city: "These are young people from other countries . . . (they) shouldn't be living in conditions that we would not want our children to live in."

[skyliner]

i concur with several of the abovementioned points. The biggest difficulty I believe is height restrictions for the reasons Wayno said.

However, due to problems in Sydney and Melbourne for Indian students in particular, we can appear even more attractive overseas if we capitalise on this now. This is a very significant move to increase demand here and raise Adelaide's profile overseas.

However,as we realise, we still have the brakes on much development here. These limiting factors are constantly coming up and discouraging developers in the whole CBD area. Joining with them and pooling information and strength will help.

The future looks better. Developers know of the huge market demand and access to finance will improve. Now things are easing up (as seen in many AFR reports) more will happen.

ADELAIDE - TOWARDS A GREATER CITY SKYLINE

[AtD]

Re. this article from the Advertiser, perhaps the ACCs Dev Plan needs adjustment to allow smaller sized student apartments. I'm not necessarily advocating a 2br apartments of 30sqm, but less than the ACCs minimum limit of 75sqm may be appropriate.

I'm not so sure, Wayno. That's a slippery slope IMO.