Chapter News

Commercial agents on the frontline

CBRE agents discuss the changing face of the commercial sectors.


Logistics is the main driving force in the industrial world today. Traditionally logistics was grouped together with other commercial sales. However, in recent times logistics has grown into its own sector, driven by the demands of companies such as Toll, DHL and TNT requiring bigger and bigger ‘sheds’.

“Ten years ago, 10,000sqm was a big shed, but now companies are requesting up to 40,000sqm,” CBRE Senior Director, Industrial & Office Parks, Matthew Lee said.

“The beauty of industrial properties is that generally the buildings allow for a range of uses for the owners.”

Rise of refrigerated warehouses

Historically, disposable IT goods have dominated industrial warehousing. However, CBRE has identified the food sector as a key growth market in Australia. The company is encouraging their clients to invest in refrigerated properties to meet the needs of the larger food retailers.

The capital investment to create refrigerated premises capable of dealing with food produce on an industrial scale can be significant. However, once the asset has been fitted out to cater for cold storage goods, it is deemed to be a safe investment.

Historically Coles and Woolworths would have made the investment in these types of properties themselves, but logistics companies are now moving into the space.

“I think that the food market in Australia is the next mining boom,” Matthew said.

“We encourage our clients to immerse themselves in the food market."

Environmental challenges

Unlike the office sector, industrial has the benefit of fewer incentives. However, it faces other challenges. Sales of secondary industrial sites, for instance, can be delayed by the prerequisite contamination tests, which can often take environmental science contractors some time to process.

“Contamination is a key issue for secondary industrial sites,” Matthew said.

“We’ve got a fair way to go as an industry to speed up the testing of contamination, but I think as you see industrial real estate become more prominent in the marketplace, you will see technology react quicker.”

Due diligence

Matthew said that there is a strong case for the allocation of more data in the industrial sector. The GFC has led banks to become more stringent in their due diligence when lending money, which has had a knock-on effect on the industrial sector where all investments are of a significant scale. Data collation could be one way to provide confidence to lenders.

“I think that information is still quite guarded and not as transparent as it could be,” he said.



Office space has undergone something of a makeover over the past decade. First there was open-plan working. Next there was the introduction of Activity-Based Working (where employees have no allotted desk and pack everything away into lockers at the end of the working day). And now? Employers are seeking properties that have access to cafés, gyms and recreational facilities.

CBRE itself underwent a move to ABW at the beginning of the year in its Sydney office. CBRE Capital Markets, Commercial Sales and Leasing Associate Director Olivia Skinner credits technology for facilitating the evolution of today’s office.

Work, rest and play

“The concept of the 'lifestyle office' has been enabled by great advancements in technology,” Olivia said.

“People have the ability to work from home, while travelling … anywhere.”

The Australian office property market has retained an average cap rate (market value) of 7.5 per cent for the past four years, which has compressed to 7.4 per cent in 2013, according to CBRE data. Weakening demand, competition from sublease and fitted-out spaces, have all challenged the market.

“With companies looking to cost save, another challenge is a decrease in demand for premium stock. This, however, is a real positive for owners of B-grade commercial assets and the creative space option,” Olivia said.

Yet, B-grade space will not suit all tenant needs, as these spaces often do not meet the NABERS requirements that government and many major companies require.

Therefore, it is not surprising that a multi-incentive approach is being adopted by many landlords in an effort to maintain an acceptable face rent. Landlords have become more aggressive in their pursuit of new tenants, and agents are increasingly becoming more creative with incentive options.

The power of incentives

“Many hidden incentives are offered, such as early access provisions, no make goods and limits on market reviews at an uptake of an option,” Olivia said.

“Most commonly incentives are taken as a rent-free period, but we are also starting to see many owners agreeing to provide fitted-out or partially fitted-out office space to compete with the rise of sublease space availability.”

Institutional owners have driven the increase in incentives, but it is questionable whether the continued rise in incentives could further squeeze private owners out of the market.

“As agents we are optimists, and when faced with challenges it is important we continually look for new and better solutions for our clients, both tenants and landlords,” Olivia said.

“It is imperative to keep our clients up-to-date on competing stock and deals negotiated, especially when it comes to incentives.”

Education is key

Market conditions mean that tenants are now taking longer to reach decisions. Therefore, it is increasingly important to educate your clients on the market to ensure they have the tools they require to make decisions on the direction of a deal — whether it be a sublease, re-fit or new premises.



As of December 2012, Woolworths and Coles controlled over 70 per cent of the retail market share in Australia. Their dominance is put into context when you consider that the three major supermarket chains in the UK (Tesco, ASDA and Sainsbury’s) share a mere 50 per cent of the UK market.

Their reach has extended across different sectors of the Australian market as they have moved into new areas of retail, including petrol stations, bottle shops, hardware and even car insurance, often at the expense of the old-fashioned suburban milk bar.

Food and drink demand

“The demand for retail, especially food and liquor, is extremely competitive. The market is the most competitive many of us can ever recall,” CBRE Capital Markets Director Daniel O’Brien said. He cited the ever-increasing population as a key driving factor.

“So while we have seen considerable pain over the past few years at the discretionary end of the market, in areas such as fashion retailing, the convenience end of the market and non-discretionary retailing has been very resilient — even during the Global Financial Crisis,” Daniel said.

“This has helped underpin continued investor interest in convenience retail assets and maintained pricing and yields at this end of the market.”

Moving online

According to the NAB Online Sales Index, online retailing has also offered many retailers the opportunity to extend their reach.

According to the NAB Online Sales Index, online sales rose 27 per cent to $13bn in the 12 months to January 2013. Retailers in Australia are adopting a “click and brick” approach.

“Shopping online is all about trust and there is no better way to build trust than by also having a physical store presence,” Daniel said.

“While some retailers downsize their store presence, we expect that the vast majority will embrace the multi-channel approach by developing their online presence, and also investing in new store openings and their existing stores.”

It seems agents are meeting the changing needs of the retail market aided by the increasing flexibility of the retailers.