Coles shifts HQ to CBD in chase for talent

The 20-year lease for an initial 10 floors, which gives the supermarket operator flexibility to adjust its use over time, marks a major sign of improvement for central Melbourne, the hardest-hit of the metropolitan CBDs, with a vacancy rate of 18 per cent in January.

The decision comes at a time when the costs of building new buildings are prohibitive.

“Coles’ office review process considered new buildings, existing buildings and different levels of refurbishment to our existing building,” a company spokesperson said.

“Retrofitting an existing building will almost always be more cost-effective, time-effective and lower risk than a new building. We found that 720 Bourke Street was the most suitable option out of everything that was considered.”

The move, which runs contrary to that of utility Australia Post – which this year moved from the Southern Cross tower on Bourke Street to a custom-built 35,000-square-metre tower in Burnley in the city’s inner-eastern suburbs – serves the company’s HR strategy.

“Being located in or around the Melbourne CBD has access to a talent pool around four times larger than an employer located in or near Hawthorn East due to greater access to public transport networks,” the spokesperson said.

“In particular, this relocation will significantly improve accessibility for current and future team members located in the northern suburbs, western suburbs and regional Victoria.”

But Coles’ decision – coupled with a demand that the landlord take out gas and fully electrify the 10-year-old building – also shows the growing demand by corporate occupiers, as they encourage workers back to the office, for accommodation that meets their own sustainability goals at a time.

“We know our current office space isn’t easily accessible by public transport,” the spokesperson said.

“Seven-twenty Bourke Street can be accessed by train, tram, bus, car, bike, foot, and has connection points to the airport (SkyBus) and regional train network (V-line), meaning our team members will have far more choice in how they commute to the office. The vast majority of our team in the new office will enjoy having this optionality.”

Coles is the sole occupier of its current 42,000-square-metre Hawthorn East head office, a campus-style collection of 12 interconnected six-level buildings built in 1986 and jointly owned by Sam Alter’s real estate business epc.Pacific and Charter Hall’s Direct Office Fund. It has 2250 car parks.

The 20-level Docklands tower has floor plates of 2850 square metres punctured by a central atrium and connected by staircases. It has been certified net zero carbon operationally since 2022.

With rising construction costs that had effectively stalled the development pipeline of new buildings, the argument for an existing building strengthened, Coles’ tenant adviser, Colliers’ Tim Farley said.

“To get a building that might fit Coles’ requirements would likely mean something would need to be purpose-built, whilst also needing to satisfy the accessibility and amenity objectives that were important to Coles and their team,” Mr Farley said.

“The economics of it simply don’t stack up in the current environment.”

Carbon disclosure requirements for companies are also tightening.

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 that came into effect progressively from this year brought in requirements for companies to calculate their so-called scope one, two and – from 2026, scope three – greenhouse gas emissions.

Scope one emissions are those a company directly causes and scope two are those indirectly generated through electricity, while scope three emissions are those created by their supply chains, including staff commutes.

The tower adjacent to Melbourne’s second-busiest train station – with 14 million passengers in FY24 – has minimal car parking, but can allow access to parks in the adjacent Marvel Stadium.

“While the greenhouse gas emissions reductions wasn’t a key driver for the office relocation, we expect a small reduction in our scope three emissions with more employees commuting by means other than cars,” the Coles spokesperson said.

The federal opposition has said it would scrap emissions reporting if it wins power in this year’s general election, but office occupiers would increasingly be looking for buildings that allowed them to lower their carbon footprints and this would continue to drive electrification demands for existing buildings, Mr Farley said.

“In order to attract those tenants otherwise prioritising the highly sought-after next-generation stock that is currently or soon to be available, owners of existing /older prime-grade assets within the city have been looking at early conversion to full electrification, allowing them to compete with the more fancied but more expensive new stock whilst also offering substantial benefits associated with embodied carbon,” he said.

Cbus Property said it was looking forward to welcoming Coles as a tenant.