Generate competitive tension, especially in a tight property market
The Property Council of Australia noted that the Apple Isle – Tasmania – has one of the lowest commercial vacancy rates in Australia at 5.1 per cent. Commentary has suggested that the Hobart commercial office market has weathered the Covid-19 pandemic well and only experienced a small rise in vacancy rates from 4.1 per cent last year.
Recently, Synergy Group has been working with Commonwealth clients to secure high-grade office space in Hobart, which has been challenging given the low vacancy rates. With 24,000 square metres of Commonwealth leases expiring in the coming years, Synergy’s leasing expert Darko Grbic explains why organisations need a tailored approach to securing property – and they must consider their requirements now.
Meet the market
There is very little good quality commercial property stock available for lease to meet the Commonwealth’s energy efficiency requirements, as well as provide the modern amenities expected, says Darko. “Our clients also expect competitive pricing, so they are facing some challenges.”
To address these challenges now and into the future – particularly in markets where conditions favour landlords, like Hobart – Darko suggests a more collaborative approach is needed by the Commonwealth. “Our clients are looking for flexibility, and that can be gained by working with other entities to deliver a whole-of-government solution,” Darko says.
The Commonwealth lease strategy attempts to do just that. However, in smaller markets with such tight vacancy rates, it’s not as simple as consolidating requirements and implementing a joint approach to market to obtain a value for money outcome.
“It might make sense to do a 20,000 square metre lease procurement in Melbourne or Sydney this way – there are many leases in the market that can respond,” says Darko. “The same requirement in Hobart can only be met with a new development, which means there is no competitive tension in your procurement.”
In Hobart, this seems especially challenging with less than 3,000 square metres of development coming online in 2021 and limited projected development through to 2024.
Achieving competitive tension is key to ensuring entities achieve value for money. Not just at the commencement of the lease, but also down the track when the lease is nearing expiry. It is a problem that can be addressed by incorporating flexibility into a consolidated approach.
Flexible planning
“We have recently seen an increase in approaches to market that include break clauses,” explains Darko. “This is sensible when the future make-up of your workforce is uncertain. In Hobart though, I believe the better option is a series of smaller leases with staggered expiry dates, which will give you the flexibility needed whilst ensuring you aren’t competing with each other for space.”
But what about the spatial efficiencies you get from co-location? “Any savings in footprint that you might make through co-location are quickly lost if you don’t create a competitive environment on your lease procurement. Not to mention the challenges of co-locating several entities with different security and operational needs.”
As a former public servant with a long history in government procurement, Darko has worked across Commonwealth entities to ensure solutions meet the operational needs of entities, as well as achieve value for money as whole-of-government solutions.
“It’s about working with clients to understand what is important to them,” says Darko. “You cannot lose sight of an individual entity’s needs when you are structuring a holistic solution or it just won’t work. I make sure that I get in front of my clients, understand their strategic and operational drivers, and design a solution around this.”
