Regional centres in fierce competition

01 Apr 2008
Michelle Romain
Property Australia

Newcastle’s CBD recorded a 1 percent decrease in office vacancy to 6 percent for the 12 months ending in January 2008, while for Wollongong’s first Office Market Report it recorded a tight 5 percent for the same period.

“All the markets are experiencing low vacancy rates, which has all been a result from growth in business,” says Peter Dodds, managing director of Newcastle at Colliers International. “We just had a property boom and we had a business boom as well. Businesses grew and we needed more commercial office space so there’s been pressure on space in all the markets.”

Even though the two markets’ vacancy ratings are above the national average of 3.9 percent, office space planned for the market is being snapped up in pre-commitments.

Wollongong is expecting 9300sqm of new stock this year, of which 97 percent is pre-committed. This trend of developments being almost entirely committed before completion will continue for the southern market, according to Simon Kersten, managing director of Wollongong at Colliers International.

“There’s about 200,000sqm of DA approved office space in Wollongong. It’s just not entering the market yet, whereas what is actually available in the market is a different thing.

“So as soon as people pre-commit, up they will come, then the statistic of 97 percent pre-commitment will continue,” says Kersten.

More than double the supply of space will enter Newcastle’s office market this year in comparison to Wollongong, with 18,927sqm. This will be the second largest addition of stock to enter the Newcastle market on record.

“As more government departments, national and international companies deploy people to Newcastle, it can cope with a lot more office accommodation. We’ve got the infrastructure here already; it’s a lovely place to live.

“Therefore we see growth well into the future and that’s also evident by the fact that GPT [Group] are redeveloping the Hunter Street shopping mall,” says Dodds.

Wollongong is five years behind Newcastle in regards to its office market maturity, according to Kersten, so the difference between office space coming on line in the cities this year is incomparable.

“It’s a small sample so the stats look worse,” he says. “Newcastle had a huge growth phase when the steel works closed down. They really got into it and they built an economic centre. Wollongong hasn’t done that, but it’s starting to.”

Vacancy for Newcastle’s C and D Grades has increased compared to the previous period. C Grade has increased by 4.7 percent to 10.2 percent, while D Grade was up by 4.9 percent to 13.4 percent. Dodds says it is comparable to A and B Grades’ decreases to a low 2.4 percent and 3.9 percent respectively.

“Those businesses that are moving out of the lesser quality spaces upgrade into B and a lot of the B’s have grown and moved into A. businesses are getting better therefore they’re stepping up the rank … C and D gets left behind for a while until we get an influx of new business to be able to fill it. It’s easy said, not easy done,” says Dodds.

Wollongong’s D Grade vacancy is a whopping 21.9 percent. Kersten says the rundown stock is difficult to attract refurbishment opportunities.

“These buildings in lower grades are small buildings so there are no big floor plates. So it’s not like a user can come in there and take 500-600sqm on a floor and refurbish the space, it’s just a few 200sqm here and there, they’re probably first floor spaces above shops, which is just not appealing to the market anymore.”

Newcastle can be seen as having an advantage over Wollongong because of a large commercial release of land in Honeysuckle. But it remains a challenge for agents like Dodds to attract developers.

“It’s been hard to get big new buildings for Newcastle CBD because the CBD was predominantly built out, which meant it had to amalgamate sites to try and get big new office developments and that’s always difficult to do. [But] the fact that we’ve had Honeysuckle means we can do larger developments.”

And even though Wollongong is restricted by mountains on one side and the ocean on the other, the southern region is about an hour to Sydney compared to Newcastle’s two hour trek.

“Newcastle is very much a regional centre, it’s self-sufficient. Whereas Wollongong is really almost a suburb of Sydney and people just haven’t worked that out yet,” says Kersten.