One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.

Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.

The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" />

Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.

Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.

The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.

Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.

The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.

That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.

The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.

"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" />

Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.

The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.

The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.

According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.

The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.

A significant component of the proposal is the revitalisation of Blue Street Plaza.

The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.

Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.

Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.

Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.

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fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.

Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.

The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.

Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.

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FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.

Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.

Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.

Joel Robinson

First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.

The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.

The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.

The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.

<img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" />

The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;

PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.

The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.

Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.

"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.

Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.

A major focus of the design has been the public domain.

The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.

The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.

Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.

Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.

Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.

Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a>

Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.

[smartcode_project:default project_id=30959 project_image_fid=292863]

It has since quietly assembled its next wave of projects.

Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.

[smartcode_project:default project_id=152095 project_image_fid=373685]

The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.

Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a> 
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First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.

At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.

The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.

[smartcode_project:default project_id=152022 project_image_fid=375528]

Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.

The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.

"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.

[smartcode_project:default project_id=152022 project_image_fid=375531]

The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.

The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.

[smartcode_project:default project_id=152022 project_image_fid=375524]

Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.

Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.

[smartcode_project:default project_id=152022 project_image_fid=375530]

The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.

The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.

The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.

"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.

"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."

Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.

[smartcode_project_cta:default project_id=152022]

Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

Not all apartment amenities are immediately visible.

Swimming pools, gyms, rooftop terraces and residents' lounges have long featured on buyers' wishlists, but as the way Australians live has changed, so too have the features that make apartment living more convenient.

Increasingly, buyers are placing value on the practical aspects of day-to-day life. Fast internet, EV charging, secure bike storage, flexible workspaces and parcel management are becoming just as relevant as lifestyle amenities, reflecting changing habits and expectations.

Online shopping has been one of the biggest drivers of that shift.

Australians spent a record $82.6 billion shopping online in 2025, with almost one in every four retail dollars now spent digitally, making parcel deliveries a routine part of everyday life rather than an occasional convenience.

For apartment residents, however, receiving those deliveries isn't always straightforward.

Without someone home to accept a parcel, deliveries can be redirected to a nearby Post Office, left in building foyers or common areas, or require building management to temporarily store packages. As apartment living continues to grow across Australia's cities, parcel management has become an increasingly important consideration for both residents and developers.

Australia Post's Parcel Locker network is one response to that shift.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/KPZ9j5FRdsQ?si=Qztc1dNP3ZvEIUhb" title="YouTube video player" width="560"></iframe>

Rather than relying on home delivery, eligible parcels can be directed to a nominated Parcel Locker, where they're securely stored until collected. Once a parcel arrives, residents receive a notification through the AusPost app or SMS and can retrieve it using a one-time code or QR code at a time that suits them.

The network has expanded to more than 1,500 locations nationwide, with Parcel Lockers positioned at Post Offices, shopping centres, supermarkets, transport hubs and, increasingly, within or alongside residential developments.

That growing presence reflects a broader change in how apartment buildings are being planned.

Developers are increasingly considering the operational side of apartment living alongside traditional lifestyle amenities. Just as secure mailrooms, bicycle storage and EV charging have become more common inclusions, parcel management is emerging as another feature that supports everyday convenience.

It also helps preserve the arrival experience within a building. Carefully designed lobbies and communal spaces can quickly become cluttered when deliveries accumulate, while secure parcel solutions reduce the likelihood of missed deliveries or parcels being left unattended.

For buyers comparing apartments, these everyday details are becoming part of the decision-making process.

Location, floorplans and finishes remain fundamental, but the features that simplify daily life are carrying greater weight than they once did. As online shopping continues to shape consumer behaviour, secure parcel delivery is increasingly becoming another amenity worth looking for.

Parcel delivery is joining the apartment amenity checklist

Inca Property Group has lodged a State Significant Development Application (SSDA) for Dawn, a 53-apartment oceanfront development overlooking Mona Vale Beach.

The proposal, at 35-39 Darley Street East, would replace an existing 18-apartment strata building with a new owner-occupier-focused development comprising 53 two and three-bedroom apartments, including nine affordable built-to-rent residences delivered under the State's infill affordable housing scheme.

Positioned on a 2,679 sqm elevated site around 280 metres from Mona Vale Beach, the development has been designed to maximise panoramic ocean views while responding to the site's sloping topography.

<a href="https://www.apartments.com.au/developers/inca-property-group">Inca Property Group</a> Managing Director Josh Thompson said the State Significant pathway provided greater certainty for projects of this scale.

"This State Significant pathway gives the team real certainty to progress <a href="https://www.apartments.com.au/new-apartments/dawn-35-39-darley-street-east-mona-vale-nsw-2103">Dawn</a> through to completion," Thompson said.

"It allows us to acquire a one-off site, design it carefully and deliver the right offering for the suburb, assessed by the NSW Government's planning department."

The project is one of the first developments in the area to be assessed under the NSW Government's Low and Mid-Rise Housing policy, with the site sitting on the edge of the policy's designated inner area.

The proposal includes three basement levels providing 124 car spaces, alongside a range of resident amenities including a swimming pool, gym, sauna, wellness facilities and private plunge pools for selected ground-floor and penthouse apartments.

<img alt="Dawn" data-entity-type="file" data-entity-uuid="fc1a1daf-0ce4-4f12-9076-b1fa553c7a91" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-21%20at%208.42.11%E2%80%AFAM.png?VersionId=4GZ9h.gpNkTljbxyAET8Jfhv51XUamDm" />

Thompson said Dawn had been designed specifically for owner-occupiers and downsizers, a buyer profile that has driven demand across Inca's recent Upper North Shore developments.

"The majority of buyers in our recent North Shore projects have been downsizers, and we are learning exactly what this market is looking for. Beyond the location itself, we have included resort-style amenities to deliver a genuine lifestyle offering," Thompson said.

Located within walking distance of Mona Vale Beach, the town centre, Mona Vale Golf Club and the Royal Motor Yacht Club, Dawn represents Inca's first Northern Beaches project following the sell-out of Tara on Park in Waitara and Ellis Residences, currently under construction in St Ives.

Construction will be undertaken by Inca's in-house construction arm, GOP Constructions.

Dawn is the latest major apartment proposal for Mona Vale, with the suburb emerging as one of the key beneficiaries of the NSW Government's new Low and Mid-Rise Housing policy.

New developer One Living, led by industry veteran Joseph Scuderi, recently secured a site on Mona Vale Road, on the border of Mona Vale and Pymble, where it is planning around 140 apartments.

IPM is also planning its third project in Mona Vale, significantly increasing the scale of its previous developments with an 82-apartment proposal at <a href="https://www.apartments.com.au/new-apartments/159-167-darley-street-west-mona-vale-nsw-2103">159-167 Darley Street West</a>, opposite Bayview Golf Course and less than 800 metres from Mona Vale town centre.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/one-living-enters-sydneys-new-apartment-market-with-northern-beaches-site-acquisition">One Living enters Sydney's new apartment market with Northern Beaches site acquisition</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-ipm-plans-third-mona-vale-project">First look: IPM plans third Mona Vale project</a>

First look: Inca eyes Mona Vale with State Significant DA for Dawn apartments

Office

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A Chinese developer has snapped up an open plan office in the Melbourne CBD for $1.26 million.
The 420 square metre office suite is located at 20 Queen Street and features a boardroom and executive offices.
Tom Tuxworth, Chris Pharr and Ed Wright of CBRE Strata Projects negotiated the sale.
The agents said the property attracted an unprecedented level of buyer enquiry, with five expressions of interest to purchase.
The sale price equated to a rate of $3,000 per square metre.
Tuxworth said the new owner planned to use the property as its new Melbourne headquarters.
“Offshore developers who have been highly active in purchasing large development sites in the Melbourne CBD are now looking for commercial office space for their headquarters,” Mr Tuxworth said.
“Offshore groups are now competing with local owner occupiers and investors, resulting in competitive buyer demand and strong prices consistently achieved.” 
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Chinese developer buys Melbourne CBD office

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An article in the weekend Financial Review opened with:"Macquarrie Group, a bellwether for the strength of the office leasing market, is expanding."
And this clearly accords with a recent report released by BIS Shrapnel, which confirmed the office recovery would be stronger in "service and trade exposed markets like Sydney and Melbourne, but weaker in the mining-based markets such as Perth and Brisbane".
<img src="/images/2014/05/06/lang%20may%207%20one.png" alt="">
Source: Knight Frank/Australian Financial Review.
For Melbourne, you are now seeing strong demand in and around the city fringe — mainly within Southbank and the Docklands precinct.
Developers in these areas enjoying obvious cost advantages, which are then reflected in a lower rent profile for their prospective tenants.
And this is what led the likes of ANZ and NAB to relocate to Docklands, over a decade ago.
A growing number of major corporate tenants are progressively realising they no longer need be located within the heart of Australia's CBDs.
Instead, they can pre-commit to prime-grade Offices at very competitive rentals — and have that accommodation designed and fitted out, to meet their specific needs.
And this demand appears to be flowing through to established suburban markets as well.
With most of these new developments having significant pre-commitment from major tenants … this should curb the tendency for speculative development, over the next 3 to 5 years.
And this will help safeguard against an oversupply of space, within the Sydney and Melbourne office markets.
 
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Demand for office space on the improve

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In a coup for Telstra Super and Aspen group, the South Australian government has signed a five year lease at its premium grade office building in the Adelaide CBD.  
The state government agreed to lease 277 square metres of space at 26 Franklin Street, at a gross rent of $520 per sqaure metre. 
CBRE’s Michael Pfitzner negotiated the lease  on behalf of lessor Aspen/Telstra Super.
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South Australian government to lease Telstra Super and Aspen group building

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Global IT company Arbor Networks has secured an office suite at 151 Castlereagh Street in the Sydney CBD.
The company has agreed to lease 428 square metres in the Valad owned building for a three year term, on an initial rent of $585 per square metre gross.
CBRE’s Tim Courtnall and Tim Molchanoff negotiated the lease.
“Arbor Networks was attracted to its location in the evolving midtown precinct, as well as the contemporary design of 151 Castlereagh Street,” Mr Courtnall said.
“The ability to complete a new fit out incorporating the balcony in the suite was also a major drawcard.” Arbor Networks had recently acquired a local business and said to be looking to grow exponentially over the next three years.
In a separate lease, in the same building,  Silverstone Investments has leased a 222 sqaure metres suite on the sixth floor. The rent was struck at $625 per square metre gross on a five-year term.
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Arbor Networks secure Sydney office lease

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The Brisbane office market is facing a perfect storm.
A sobering report by forecaster BIS Shrapnel is predicting the sunshine state to be hit with an oversupply of stock for the next decade, along with a vacancy rate set to reach 18% plus in 2016.
The city's looming oversupply woes was just one of the topics examined in the Brisbane office market report. It looked at the strength of leasing and investor demand, all of which pointed to a challenging few years for the market.
Not mincing it's words, BIS Shrapnel said: "there’s a perception that further oversupply in the Brisbane CBD office market may be averted by withdrawing secondary buildings for conversion to residential or short term accommodation uses".
"While there are perhaps a handful of suitable candidates, it will be a case of too little too late."
The report warned that because of that oversupply pressure, rents and property values will take a hit. 
<img src="/images/2014/04/29/chart-of-the-week-april-29.-breakout.jpg" alt="">
Author of the report, Christian Schilling, said there were three towers currently under way in the CBD that would add another 186,000 square metres of new space before the end of 2016, equal to 9% of current stock. 
In contrast, withdrawals for conversion or re- development expected over the same time horizon, he noted,  sum to just 72,000 square metres, or 120,000 square metres to the end of 2017.
"On balance, that is still one tower too many", he said. "And this is on top of weak demand and a vacancy rate of 14.2% at January this year".
Among some of the buildings slated as withdrawals in the report were 80 Albert Street,plus a number of buildings to be vacated by the state government over the next three and a half years, which include Health House, 80 George Street, the Executive Building, the Executive Annex, Neville Bonner Building and Forestry House. The Primary Industries Building was also flagged as a potential withdrawal for redevelopment, along with some odd small buildings for conversion to residential or short term accommodation. 
Against this backdrop, BIS Shrapnel is also forecasting demand to be weak in the near, with the CBD expected to suffer "a triple hit in the form of the Government’s release of surplus space, tenants leaving for the fringe, and falling mining investment".
The forecaster estimates that since 2012, cuts to the public service and it's accommodation have resulted in 120,000 square metres of surplus space in the CBD, plus a further 20 square metres in the fringe, all of which the government intends to release as lease expire.
It is forecasting another 70,000 square metres of space to be released in the CBD over the next 3 years.
Compounding the situation, it notes is the space vacated by BOQ, Ventyx, Flight Centre and Robert Bird Group, all of which are leaving the CBD for the fringe, resulting in more than 40,000 square metres of vacated space.
Also constraining demand, it added, was the downturn in mining investment.
“I don’t want to talk the market down, but it’s simple maths”, said Schilling. “Unless mining investment takes off again, which is highly unlikely to happen over the next three years, vacancy rates will blow out to over 18% in 2016.”
As such, he believes, the Brisbane office market would represent a very challenging environment for building owners, developers and investors.
"Anyone contemplating investing in Brisbane in the short term should think carefully about the potential consequences, as the market weakness is likely to persist for the rest of this decade”, Mr Schilling warned. 
Photo courtesy of <a class="owner-name truncate" href="https://www.flickr.com/photos/burningimage/" target="_blank" title="Go to Nam Nguyen's photostream" data-track="attributionNameClick" data-rapid_p="21">Nam Nguyen</a>/Flickr.
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Oversupply and vacancy rate creating a perfect storm for Brisbane office market

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GUEST OBSERVATION
Despite the global financial crisis now in the rearview mirror, investor risk aversion continues drive the flight to quality - prime office, retail and industrial assets in major markets.
Australia, with its yields offering a premium to markets such as New York, London and Paris, continues to be a magnet for large global pension funds and sovereign wealth funds hunting for yield. With their big cheque books they are aggressively competing with domestic investors for a limited supply of prime assets.
As a result, cap rates have been pushed lower and prices higher – the so-called “weight of money effect”. Investors are being forced to pay up for the perceived safety of these prime assets – and in some cases they are really taking on more risk as their assets are being “priced for perfection”. This has caused a disconnect between real estate capital and real estate space markets.
The underlying real estate fundamentals continue struggle post the GFC. Across our major CBD office markets, vacancy rates and tenant incentives remain elevated. The Brisbane CBD office market hit a record high vacancy rate in January and tenant demand across Australia’s office markets was the lowest on record in 2013. Retail sales have been subdued albeit it is now showing signs of picking up. Industrial demand spurred on by changes in logistics and distribution has been the one bright spot.
Part of the justification I continually hear is that the yield spread – the difference between real estate yields and real bond yields - is at historical highs. Prime Sydney CBD office yields are around 6.75% offering a spread of some 470 basis points which is 50 basis points higher than the long-term average. However, a spread this wide is unlikely to last. Bond yields are starting to tick up at the same time as cap rates are firming. Hopefully, any fallout from rising bond yields on real estate values will be offset by improving real estate fundamentals and income growth.
We aren’t at the heady days of the late 90s or 2007/2008 when Sydney CBD prime office yields hit a record low of 5.5% in both periods. So we can draw some comfort. But at the same time we should not get complacent. The “weight of money effect” if it continues could push yields well below today’s level. I don’t think they will get that low in this cycle but one can never rule it out – when the money’s flowing it’s hard to stop.
So what should investors be looking for in the coming year?
I have always taken the view that you make money in real estate by buying well. Overpaying now for an asset in a low growth, low inflation environment doesn’t give you many get out of jail free cards. Sure the underlying real estate fundamentals should improve as economic growth picks up but paying too much now for that future growth may cause some investors pain down the track. Discipline buying is critical.
Investors could look beyond prime markets and seek out quality assets in non-prime locations which are trading at a yield premium to the prime locations. Suburban office markets are definitely worth looking at.
Investors prepared to move up the risk curve could purse value-add strategies – repositioning assets, re-leasing etc to create core product for the more risk averse investors. Timing the entry and exit, and active asset management, are critical to successfully executing on this strategy.
Finally, one strategy that I believe has real merit is to expand the definition of core assets beyond office, retail and industrial to real estate related social infrastructure such as child care, student accommodation, seniors housing and medical/health to name a few. The yields are typically higher, the leases longer, the demographics are on your side and they often have government backed cashflows. And the competition for assets is less intense. Well at least for now!
Greg Paramor is managing director of <a href="https://www.folkestone.com.au/" target="_blank">Folkestone</a>.
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What should investors be looking for in the coming year?

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Just three days after the close of an expression of interest campaign, a Malaysian investor has swooped in on a whole top floor stratum titled office in Melbourne's South Yarra.
At $4.28 million, the sale is seen as one of the most significant Melbourne strata office transactions in recent years, equating a rate of $7,781 per square metre.
More than 60 enquiries were received through a marketing campaign steered by CBRE's Ed Wright, Tom Tuxworth and Mark Wizel.
The property has a total building area of 645 square metres, of which 366 square metres is available for immediate occupation. The balance - 279 square metres- is leased to the Bridge Consulting Group, generating a net income of $156,000 per annum.
The property at 9 Yarra st, South Yarra was sold with "value-add potential" with plans and permits to add an additional 16th level incorporating 591 square metres of building area.
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Malaysian investor buys South Yarra strata office for $4.28 million

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In one of the strongest signs that corporate Australia is in recovery mode, the sub-lease vacancy rate across the CBD office markets contracted in the first quarter of this year.
Sub-lease availability, seen as a bellwether for business confidence in corporate Australia, recorded a reduction of 11,500 square metres across CBD office markets in the first quarter. The only city not to record a reduction was Melbourne.
The results were contained in JLL's Q1 statistics on the national office market report, which said the reduction was the "first sign that corporate Australia is moving from a consolidation to growth mode". 
But the positive numbers were muted by the national CBD office market vacancy rate, which held steady at 11.7% over the same period. 
JLL’s head of office leasing in NSW &amp; Australia, Tim O’Connor, noted that the "reduction in sub-lease availability we recorded over Q1 is the first phase of a metamorphosis from a weak leasing market to a market that is in the early stages of recovery". 
For a company to remove sub-lease space from the market, he said,  implied that it was likely to make headcount increases over the next two to three years. 
The Sydney CBD experienced the most notable reduction in sub-lease availability - falling by 10,500 square metres in Q1 to 1.27% of total stock. 
"Sub-lease availability is now at the lowest level since Q4 2012 in the Sydney CBD", said the report.
As a result, the Sydney CBD recorded its first positive quarterly net absorption result -1,500 square metres - since Q2 2012. Partly driving that uptake was the higher activity in technology sector. 
Mr O'Connor said that in Sydney, Symantec had leased additional space at 207 Kent Street, while a number of other technology firms had active requirements.
Despite Melbourne experiencing no reduction in sub-lease availability, the vacancy rate in the CBD fell to 10.4%, which a according to JLL is now the tightest of the monitored CBD office markets.
The tenant demand environment remained challenging in the resource-dependent markets of Brisbane and Perth. Both markets recorded a further quarter of negative net absorption in the first quarter. 
The Perth CBD recorded a seventh successive quarter of negative net absorption of -18,600 square metres. The contraction in net absorption over that period, it noted, had totalled -150,000 square metres. As a result, the vacancy rate in the Perth CBD moved out by 1.0 percentage point to 11.8%.
The reduction in Brisbane was a negative-1,600 square metres and the CBD vacancy  remained at a record high of 15.5%. 
JLL’s head of capital markets research, Andrew Ballantyne highlighted that the demand slowdown in the near-city markets of Brisbane Fringe and West Perth, which had a higher concentration of resource sector tenants than the CBD, had been more pronounced. "The West Perth vacancy rate has pushed out to 13.6%, while the Brisbane Fringe is sitting at 14.3%”, he said. 
Adelaide recorded zero net absorption over the quarter and vacancy remained at 13.9%, while Canberra recorded positive net absorption of 8,600 square metres.
O’Connor said: “The Reserve Bank of Australia recently noted that there are encouraging signs that the handover from mining-led demand growth to broader private demand is beginning".
"We expect the Sydney and Melbourne office markets to be the main beneficiaries of this transition over 2015 and 2016.” 
Supply additions across CBD office markets in 2014 were expected to be at the lowest level since 2002, he added.
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Sub-lease vacancy rate falls in strong sign of corporate recovery

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Expectations that Melbourne's CBD office market is in recovery mode have been declared premature by as much as 18 months.
The cautious assessment was revealed in BIS Shrapnel’s latest Melbourne Commercial Property Prospects 2014 to 2024 report which disputes claims that the mid-year fall in the city's CBD office vacancy rate from 9.8% to 8.7% as at December 2013 was a sign of a turnaround.
Instead, BIS Shrapnel senior project manager and report author, Maria Lee, attributed the reduction in vacancy rate in December 2013 to an unusually high level of withdrawals from stock.
"Had it not been for those withdrawals, the vacancy rate would have increased because net absorption was very weak", said Lee.
BIS Shrapnel doesn't expect such high levels of withdrawals to continue.
"The market will have trouble absorbing the quantum of floor space due for completion this year and next", she said.
"That said, due to the lumpy nature of completions it’s quite possible that the vacancy rate will fall temporarily in June 2014, but essentially we are bumping around the bottom in terms of the leasing market, vacancies and rents.”
BIS Shrapnel expects net absorption to remain fairly moderate in the near term, albeit it should pick up from the 10 year low recorded in calendar 2013.
Driving that view is the sustained soft patch in the Victorian economy. Specifically, Lee points to residential building activity falling, non-residential building being subdued and cuts in government investment a drag on growth.
She added that the high Australian dollar over the past few years had hit Victoria’s key trade-exposed industries, namely agriculture, manufacturing, finance and business services, international student education, and tourism.
Those factors "will not turn around immediately", said Lee.
BIS Shrapnel’s report sets out several reasons why the weakness in the Victorian economy is likely to continue for at least the next year before stronger fundamentals begin to reassert themselves:
<ul>
<li>Total building activity is likely to be soft for some time, dragged down by the residential sector despite the inner city apartment boom underway. </li>
<li>New public investment is expected to continue to trend downwards over the near-term as the state government attempts to consolidate the budget. </li>
<li>Engineering construction work done has further to fall due to the lack of major projects (apart from East West Link). </li>
<li>The Australian dollar is not yet weak enough to significantly boost the competitiveness of the state’s trade exposed sectors. Meanwhile, the closures of Ford, Holden and Toyota are a particular blow.</li>
</ul>
BIS Shrapnel anticipates that Victoria’s pace of economic growth will underperform against the national average for a "few more years".
For landlords and tenants, the report said, that meant that leasing incentives were likely to remain high for some time yet, continuing to affect owners but affording tenants a great opportunity to lock in low rents and/or upgrade to better quality accommodation.
Despite those headwinds, Lee made a point of saying that the economy was fundamentally strong and that the key drivers that underpinned the strength of the Victorian economy last decade were still in place.
"Consequently, the report forecasts a strong rebound in Melbourne’s office market in the second half of this decade," she said.  
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Forecasts of a Melbourne office recovery premature: BIS Shrapnel

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GUEST OBSERVATION
Behind the buildings that are our business in the commercial and industrial property sector, is the real value: our people.
No matter how much hard work goes into planning, design and construction, a building remains a liability without people; that is, the tenants.
I think our sector can lose sight of the reality that it’s the people who use a building that release the entrapped value in the building.
And while they may be our “tenants” or our “customers”, the reality is that they’re people first, and we all know people value relationships that go beyond the transaction.
We believe the old business saying that the ‘customer you have is the one you want to hold onto’ is a cornerstone for success.
It’s more difficult and costly to get new customers than to retain existing ones.
Our strategy is to retain existing customers – our “tenants”.
We systematically travel the country to meet tenants face-to-face, respecting both their time and their businesses.
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The core of our business is maintaining relationships and keeping tenants happy - and keeping them in our buildings.
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We ensure our tenants can focus on running their businesses rather than stepping outside their expertise. We deal with the complex property processes for them, because that’s our area of expertise.
And no matter where they are on the leasing cycle – 10 years out or just months to expire – we value and deliver the same standard of service.
Putting relationships first builds trust and that means we can move quickly, act decisively and confidently. Our confidence gives others confidence and in turn drives their success.
To explain, less than 12 months ago Quintessential Equity acquired a five level commercial building with a net lettable area of 7,129 square metres at 166 Epping Road, Lane Cove West in Sydney.
The building was 20% unoccupied and had been for some time. Our immediate priority was to attract new tenants, but to do this we had to make significant enhancements. 
Within the first month our engineers had assessed the building’s condition and discussed enhancements with existing tenants, based on their needs.
A year after settling on the property in April 2013, occupancy is now 97.75%.
If you don’t have tenants, your building can quickly become a liability and your asset can enter financial distress. 
The core of our business is maintaining relationships and keeping tenants happy - and keeping them in our buildings.
This is a very simple philosophy, but it pays dividends to us.
And it will be how we continue to run our business regardless of the ups and downs, because it is what we believe.
Shane Quinn is director of <a href="https://www.quintessential.com.au/" target="_blank">Quintessential Equity</a>.
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