CLP’s EOI needs careful consideration
The Northern Territory Government's Expression of Interest for 12,000 square metres of new office accommodation comes at a very crucial time for the Northern Territory commercial property market.
Unlike other capital cities, the Territory Government effectively controls the office market as the major occupier of leased office accommodation.
Over the last several years, government initiatives have significantly increased the supply of high-grade office accommodation in the Top End, Northern Territory Director Ruth Palmer said.
“We have seen a significant rise in vacancy rates to 21% and the Top End already has the highest vacancy rates across all capital cities.
“The Government must be cautious about further stimulus initiatives.
“At the moment, there is no demand for additional commercial office space.
“This expression of interest has the ability to do two things, it may further deteriorate the commercial property market into conditions not ever seen in the Territory, or it may allow existing stock in the Darwin CBD to be refurbished that would increase employment in our capital city, and improve business conditions for not only the commercial property sector, but the residential market and retail sector.
“If no existing office space is taken up by the Health Department and only new office space is utilised, we will almost certainly see vacancy rates exceed a record 30%.
“The economic impact of such a decision is something that the commercial property market may not be able to recover from.
"During the EOI process, the Northern Territory Government needs to consider a number of important crucial factors.
"The first factor that needs to be considered is the timing of any proposed new leasing initiative. At the moment, there is zero (non-government) demand for additional commercial office space in the whole of the Top End. Any new project will cannibalise existing leased building, leaving them vacant and adding to the already significant office vacancy problem. An appropriate timeframe will need be considered that would allow for the current excess vacant office stock to either be repurposed or gradually be re-adsorbed by the market, prior to the introduction of substantial additional office space.
"The second factor that needs to be considered is the location of any new building and how to avoid defragmentation occurring. Ultimately, this question boils down to whether the Northern Territory Government supports the creation of an active business hub in its capital city and the additional downstream synergies with tourism, hospitality, retail, and lifestyle. Or to proceed with defragmentation, that will increase inefficiencies and potentially cripple the chances of Darwin becoming the vibrant city that is the true gateway to Asia.
"The third factor that needs to be considered is the Building form that may result from any new government tenancy. The Expression of Interest is for 12,000sqm, such an area could be accommodated either in one large scale building or a number of smaller medium scaled buildings.
“Some of the existing office stock in the city is in good condition. Property in the city has the potential to be upgraded to a suitable standard and refurbishing existing properties will require a significant amount of investment and will help support the local construction sector, in particular small to medium size contractors.
“Once this existing office stock is refurbished, the result will be improved market conditions that will likely spur additional construction activity in the long term. At the moment, market conditions do not support additional commercial construction activity.
“If the Territory Government believes it is necessary to consolidate Health Department staff, this can be done by simply using the existing stock in the Darwin City Centre. All of the potential properties are in very close proximity to one another.
“If the government proceeds down the path of utilising existing refurbished office space in our capital city, it's a win-win scenario for everyone.
“It seems clear what path must be chosen if it's really necessary to proceed with this type of consolidation.”
Ruth Palmer | Northern Territory Director