It’s no secret that the way businesses use space is changing and the office market with it. A new trend is gathering pace – suburban offices. While it is true that landlords of Premium and A-Grade assets in the CBD such as Dexus are seeing rent collections, rates and occupancies holding up, the opposite is true for CBD landlords of lower grade, smaller format offices. Smaller businesses with shorter leases, smaller teams and who may have been hit by covid are reevaluating the importance of a CBD address.
Demand for high quality suburban offices is growing and will outlast the pandemic. A large law firm with hundreds of employees from all parts of Melbourne will still need large format space within the centrally located CBD. However, small and medium-sized organisations such as family offices, start-ups and design firms with more local teams and flexible needs are seeing increased benefits in a city fringe or suburban location.
The popularity of suburbs such as Cremorne in the past decade (home to the Wefund team) is testament to this. Inner city, medium density suburbs boasting strong linkages, train stations, car-parking, amenities and young, professional workforces will increasingly become host to small and medium format, high quality office buildings. Cremorne, Richmond and even Collingwood have been popular locations for offices for years now. With Covid accelerating the move from the CBD, the trend is spreading further than the immediate city fringes.
Smaller developers such as Curtis York are introducing small format, high quality office stock to suburbs such as Prahran and Cremorne. Nick Peters of Curtis York says he is “seeing a diverse range of business owners wanting a new office space for their company”. They want each floor plate to be custom designed to provide for optimal social distancing”. Nick says that of the “big talking point is the location of [Curtis York’s] projects, which are located in city fringe areas that have a nice, local community feel”.
It’s not just developers and tenants who are seeing the value in suburban and fringe offices, but investors too. A recent example is the sale of a newly constructed, seven story office building at 45 Wangarrata Street, Richmond, which transacted to a Hong Kong based investor on a yield of 3.7%. Another is seen at 11-23 Burwood Road, Hawthorn where a four-level office building sold on a 5.4% yield for 17.5 million.
Covid-19 has heralded many new trends and accelerated others; the suburban office is one to keep an eye on.
