Refurbished B-grade stock is regaining momentum as 50 Queen Street in Melbourne’s CBD sets the benchmark for secondary-grade spec suites, with many other landlords now following suit to capitalise on the current strong demand for spec suites to avoid vacancy and long downtime periods.
Colliers’ Manager, Office Leasing, Alissa Woods, said, “With increasing vacancy throughout the building post-COVID-19, as tenants pursued a flight to quality upgrade, the landlord of 50 Queen Street’s undertook an impressive refurbishment strategy to mitigate their risk and appeal to the strongest market coming out of Melbourne’s lockdowns in 2022.”
“Recognising a gap in the market, the landlord subdivided level 1 into five fully fitted, turn-key suites and included a common shared kitchen breakout area. The market received the high-quality suites well, as three were leased before practical completion, one upon completion and the final within three months post-completion. In addition to short letting up periods, the landlord saw about 30% uplift in net rent.”
“Throughout 2022, the bulk of the leasing activity we have observed at Colliers has been focusing on quality fitted space, with limited traction on existing older style fit-outs, refurbished products or buildings that don’t offer additional tenant amenities,” said Ms Woods.
Seven new tenants have committed to space at 50 Queen Street in the last 12 months, taking up over 1,500 sqm of office space combined, some who have already expanded and taken up additional space than initially secured.
Data from Colliers’ latest Snapshots reveal that occupancy in the Melbourne CBD has gained momentum, with 47% of the CBD workforce back at their desks in February 2023, compared to just 15% reported during the same time last year. This number is predicted to continue to rise to above 60% when the PCA releases the March 2023 results.
Activity has substantially ramped up over the first quarter of 2023, with the number of deals done in Q1 almost four times the number completed in the first quarter of 2022, and the total space in those deals was around two and a half times the size of deals finalised in the first quarter of 2022.
Izabella Minas, Executive of Colliers Office Leasing, said, “Focusing on secondary stock, we are seeing un-refurbished assets without quality turn-key offerings lagging behind with higher vacancy levels.” “Landlords must stay ahead of the pack and go forward with refurbishments throughout assets, including lobby upgrades, end-of-trip delivery and spec suite rollouts to ensure they can tighten vacancy whilst also seeing an uplift in face rents.”
“Flight to quality and experience remain key trends in 2023 as tenants take advantage of attractive incentives to upgrade their office spaces,” Ms Minas concludes.
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