There are in excess of 550 local government areas in Australia, a state or territory government for each of our eight jurisdictions and one federal government. The public sector’s requirement for office accommodation is a very large one indeed.
In the departmental annual reports of state and territory governments, office accommodation is commonly cited as the largest expense in a budget, after staff salaries. This resonates in my home city of Perth, where unprecedented rental growth in recent years has been fuelled by the private sector’s demand for office space. Prime gross rents in our central business district (CBD) averaged AUD 331 per sqm per annum in March 2003, before almost tripling to a peak of AUD 956 per sqm per annum in December 2008.
To manage rising expenses, office portfolio planning is essential. Efficiencies can be enhanced through the consolidation of multiple premises at one address, a reduction in workspace ratio, investment in improving a building’s environmental credentials for longer-term reward and decentralisation to more affordable suburban locations. A decrease in headcount is another option. As my colleague, Peter Guevarra, noted last week in relation to Brisbane, significant Queensland public sector downsizing is impacting on vacancy and net absorption in that city’s CBD.
Property occupied by the mid-tier of Australian government is not always centrally managed. Tasmania is one such example where each agency is responsible for managing its own portfolio. In Western Australia, a branch of the Department of Finance oversees the state government’s office needs. According to the Department’s website and as at June 2012, the government was occupying around 555,000 sqm of office space state-wide. Tenure varied between owner-occupier (19 buildings) and tenant (around 510 leases with private sector owners).
From a landlord’s perspective, based on evidence we have seen in Perth over the last nine months, the state government is an ideal office tenant. Tight equivalent yields, high values and foreign purchasers were common themes in the sales of Optima in suburban Herdsman and a 50% share in the Perth CBD’s Old Treasury development. With the Department of Justice pre-committing to the latter for 25 years and agreeing to annual rental increases, the asset is akin to owning an Australian government bond.
About the author
Anna Garvey is a Research Analyst for Jones Lang LaSalle in Australia, based in Perth.