It must be remembered why these incentives are so high. The property market cycle lags some 6-12 months behind the stock market, being slower to react and less volatile. Whilst the Australian economy performed better than others through fiscal prudence and bucket loads of natural resources, confidence has been dinted. The promised economic surplus became a 19 billion deficit. The high dollar has decimated manufacturing and resulted in a slowdown in export with a knock on effect to white collar employment. So it is not at all surprising we are seeing these effects impact upon the demand for premises and resulting rental and incentive levels.
Sarah Danckert wrote recently in the Australian that “Fresh warnings have been sounded about panic among Melbourne office landlords, with an economic forecaster saying net effective rents could fall a further 10 per cent over the next 12 months “. BIS Shrapnel have said net effective rents fell 7 percent to $325 per square metre over the year to June with vacancy pushing out to 9 per cent. Landlords so far have resisted dropping their face rents for valuation reasons preferring to meet the market by offering higher leasing incentives.
With increasing vacancy rates and poor demand, the prospect of conditions changing in the next 12 to 18 months look slim. The Victorian economy is expected to remain weak until the end of 2014 creating a flow on effect for the Melbourne office market with many large corporate tenants downsizing their space requirements.
Now is a great time to be re-negotiating leases or relocating to new premises.
Chris Goodwin is the Principal of Goodwin Property Advisory who specialise in the provision of independent real estate advice to tenants and occupiers of commercial and industrial premises.