The Flight to Quality
When focusing on office leasing, the region has seen a clear shift in the marketplace being a “flight to quality”.
The flight to quality trend has been a ‘buzz phrase’ for a number of years, but one more associated with larger capital city markets. It is now far more evident in the Illawarra and, we believe, will remain so.
In basic terms flight to quality simply means businesses are relocating from older, lesser quality and ‘less loved’ premises into more modern and well managed accommodation that provide better amenity.
Put simply, tenants are demanding more.
For example, features such as end of trip facilities, collaboration areas, appealing common areas, NABERS ratings, and café’s are now viewed as almost basic requirements rather than ‘wishful’ items
COVID impacts have accelerated this trend. There is a genuine shift in how we view offices, and what the role the office actually plays. We could discuss this at length, however for our purposes here it is safe to say that the traditional office as we know it has changed for many businesses.
The extent of that change varies depending on the actual business, but one constant remains in that the ‘value proposition’ of the office has come under scrutiny. Businesses want their offices to be more appealing, not only to attract and retain staff in a highly competitive jobs market, but also to encourage their staff to want to come into the office.
In addition, the Illawarra has had an influx of new A grade office premises in recent times that has changed the demand versus supply dynamic. At the same time that COVID has impacted how we view the office, and the overall demand for office space, Wollongong has seen the completion of three (3) new commercial developments in ‘Avante’; 140 Keira Street; and ‘Laings Corner’; not to mention the recently constructed ‘Enterprise 1’ at the nearby UOW ‘Innovation Campus’.
We have gone from a very tight A grade market to one that is oversupplied, at least in the short-medium term.
Whilst A grade tenants get the benefit of higher incentive levels (which makes it more enticing for businesses to relocate), there is a flow-on effect to the whole market, as it adds extra fuel to tenant demands for better quality premises across the board. Opposite to initial reactions, the current situation is a great opportunity for the region as it provides quality choices for existing businesses and, more importantly, the opportunity to attract new commercial office business to town. This has been an area we have historically found difficult, in part due to the lack of stock available.
Commercial landlords therefore need heed current market force pressures to adopt a pro-active approach to maintain and upgrade their assets in order to meet increasing demands of tenants, or risk being left behind.