Choosing a new office space in a certain asset class of building is much like booking a seat on a plane, you are going to be there for a while, and it can really make or break your experience. Whether it be first class, business or economy, each ticket varies in price and quality. You must do your due diligence and decide on what you can afford and what you want/need. A similar process is involved when selecting a commercial office tower for your next space. The Brisbane CBD grading ‘guidelines’ for Commercial office towers are set out by the Property Council of Australia (PCA) and is distinguished within the following three categories: Premium, A Grade, and B Grade. The quality of grades is often skewed and subjective depending on where you are analysing. Therefore, each building is classified based on the supply to the market within the area.
The classification of office grades is consistent for all Australian office towers and is influenced on certain criterions, as listed below:
- Building Age
- Building Net Lettable Area (NLA)
- Floorplate NLA
- Location
- Lifts (speed, size and number of lifts to building per NLA ratio)
- Environmental credentials (NABERS, Green Star ratings)
- Building management control systems (BMCS)
Premium Office Buildings
Premium office towers comprise of the most elite, state-of-the- art office amenities within the market. They hold the benchmark for the standard of building within the CBD. Premium offices are often located in the hottest part of the CBD and are more often or not, brand-new developments or purpose built with the intent of being a Premium Grade asset. The majority of the new Premium buildings are situated within the Financial Precinct ‘Golden Triangle’. These buildings all have high quality architectural features presented within, elite building management, first class amenities, extensive car parking, efficient HVAC systems and world class security and communication systems. Premium Grade buildings naturally hold the highest-price range and more often than not, occupied by internationally recognised company’s or very client facing businesses. The Premium Grade market within the Brisbane CBD has tightened significantly with a gradual flight-to-quality trend even with the introduction of new supply with 80 Ann Street which has leased well to date. Premium Grade holds an extensive level of luxury and privacy in comparison to any other grade. The full height glass, global occupiers and world class restaurants within the ground floor makes it hard for other grades to compete.
There are currently six Premium buildings available within the Brisbane CBD office market, these are:
- 123 Eagle Street (Built in 1986);
- 1 Eagle Street (Built in 1989);
- 71 Eagle Street (Built in 2005);
- 111 Eagle Street (Built in 2012);
- 480 Queen Street (Built in 2016);
- 80 Ann Street (Built in 2022).
Premium buildings gradually in time have become more advanced and more developed. We predict this trend to continue with the advancement of technology and mechanics. Brisbane currently has three Premium developments in the pipeline that are either currently being built or are being discussed to be completed within the next 3 years.
A Grade Office Buildings
A Grade buildings offer what the majority of Premium Grade buildings also do, however the lack in specific areas with location, size and general quality being the main differentials. These buildings commonly do not have the same sizing and exact finishes as Premium buildings, however, are still high-quality buildings. Their building systems, concierge and location are commonly analysed as ‘market norm’. With the grade as a whole tending to be where the average rent sits across each grade. From a tenants perspective looking to secure an upmarket fit out the A Grade market can be a cost-effective decision. With this grade still maintaining high quality amenities within a prime location.
The majority of A Grade stock will never be considered as premium stock due to the sheer volume of size that is required to be classified as a Premium building. A perfect example of this would be the 12 Creek Street – The Annex development. This building presents at a premium level, offers elite ground floor amenities, 6.0-Star NABERS ratings, full height glass windows however does not fulfil the size requirement in order to be classified as Premium Grade. We anticipate for A Grade buildings to continue on developing in a similar trend alongside the growth of Premium Grade.
A-/B+ Grade Office Buildings
The A-/B+ Grade is not taken into consideration within PCA measurements. This Grade was specifically calculated and formed from the Caden Research team. We believe there is a gap in the market where buildings of lower A and higher B grades are not being represented accurately. The assumptions were based off the assets quality, age, and limited vacancy. A good example of a lower A Grade asset being re-defined in our analysis would be 307 Queen Street and 333 Ann Street. We have made the assumption based off the asset’s floorplates only being 800 – 860sqm. With the average floorplate in A Grade being much larger at approximately 1,100 – 1,250sqm.
Similarly, the average face rents within 307 Queen Street and 333 Ann Street are both lower than the targeted rents within the majority of A Grade assets. The more superior B Grade assets that have been calculated within our A-/B+ Grade analysis include 260 Queen Street and 324 Queen Street. These two properties are within prime locations and have both recently undergone lobby/building refurbishments to re-purpose the asset into a higher grade. The added investment into both of these assets has meant each of the building owners have been able to push their face rents to allow for an increase in the assets overall rental profile. The A-/B+ Grade provides us with the ability to hypothesis and allow for our own judgement within the market. We predict there to be a number of B Grade owners to look at ways to re-purpose their assets over the next couple of years. This will be done through the completion and refurbishment of end of trip facilities, concierges and lobby/lift areas.
B Grade Office Buildings
In comparison to A Grade buildings, B Grade assets are secondary when it comes to their location, maintenance and facilities. Most companies make their home in B Grade due to having more cost-effective options and more supply in the sub-500sqm market. B Grade landlords are more willing to split larger floor plates to target Small-t0-Medium sized Enterprises (SME). These assets are more likely to be occupied by smaller or start-up companies who cannot afford higher quality buildings. The B Grade market as a whole has 79 buildings within the Brisbane CBD. This is the largest amount out of any of the other grades and despite some flaws continues to remain strong within the Brisbane market with their landlords utilising spec suites as a point of difference in drawing in tenants.
With 60% of current spec suites on the market being built within B Grade stock. Landlords within this market have seen a unique opportunity at re-purposing their asset with the inclusion of such features as; on-floor concierges and end-of-trip facilities. These inclusions alongside the drive for spec suites has seen 57% of all transactions in 2021 being done within B Grade buildings. 201 Charlotte Street is the perfect example of an asset that has recently been re-purposed. With the asset recently undergoing a full revamp to its lobby area. The investment into the ground floor has seen the asset now being transitioned from a B to an A Grade building. We expect the B Grade market to continue to improve and develop alongside the other grades. With the PCA classifications slowly climbing we expect the B Grade market to follow suit.
