As the commercial property market becomes familiar with the notion of ‘rent-to-buy’, astounding vacancy rates in the CBD and potential cultural changes brought about by remote working, premium office space has fast become a buyer’s market with the window of opportunity officially open.
For agents looking to broker substantial deals on inner-city commercial properties, allowing the tenant to ‘try before they buy’ via a ‘rent-to-buy’ scheme gives them the opportunity to settle into their new surroundings without the pressure of mortgage repayments. Rent-to-buy is gaining popularity and being championed by some of the industry’s leading developers. Commercialrealestate.com cited the development of a new “$23 million state-titled office building in Melbourne’s west” that encompasses the new rent model in which it will lease its suites for up to a year in an attempt to identify tenant attitudes and responses to their new surroundings. If tenants do decide to purchase their suite, they can later deduct rent paid from the purchase price which in-turn reduces the overall cost of their newly acquired premium office space. The agreement is of mutual benefit at both ends of the transaction as the landlord will derive rent-income with the opportunity to negotiate a sale price in which paid rent is deducted for the tenant. The longevity of these schemes are unknown and as the economic recovery is expected to move in tandem with the vaccine rollout, locking in a property on a rent-to-buy scheme might be one of few avenues to securing a high value commercial property in the next umpteen years.
As the rent-to-buy scheme gains momentum in commercial property circles across the country, the devastating vacancy rates of inner-city hubs such as the Docklands also provide opportunity to innovate and invest. A City of Melbourne report found that “47 percent of street-facing shops had shut their doors [with] 29.1 percent of them vacant” and subsequently, rents have dropped by 22.7 percent since March last year. Such high vacancy paves way for a drop in unit value (“5.1 percent drop according to a CoreLogic Analysis) and for a suburb that has historically employed 73,000 people, flexibility around lease terms and functionality of the buildings will have to be considered by agents and landlords looking to entice people back to the area.
One of the biggest factors in enticing people back to the hubs is catering for the cultural shift experienced by remote working Australians in the past 12 months. The Property Council of Australia (PCA) has encouraged Melbourne businesses to adopt “shorter Friday workdays” in aid of luring workers to the CBD. The proposal certainly looks to help revive city trade by incorporating a cultural element to workplace agreements that will promote discretionary spending from 4pm on Friday afternoons. In the meantime, as agents and business owners negotiate deals that can bring about more long-term leases secured by happier, cohesive employees, the astonishingly high vacancy rates that underscore areas like the Docklands are an invitation for investors get a foot in the door immediately and seek out an agent willing to offer agreeable terms that are a reward for leading the revival of an inner-city hotspot.
As investors gauge the potential of the oversupply of commercial real estate, incorporating cultural incentives and accommodating lease terms such as ‘rent-to-buy’ will go a long way in rectifying the trend of high vacancy rates, shorter leases and break clauses that currently underscore the commercial property market.