Suburban leasing - Blanket increases in office vacancy across all suburbs has been recorded, rising to 8.1% in March 2009. As lending requirements tighten and the ratio of pre-commitment requirements increase, many speculative developments are being placed on hold. Construction recently released to the market together with upcoming completions will cause vacancy levels to continue to rise in the short and medium term. Tenant demand for high quality, modern sustainable buildings means leasing activity will over time fill these newer options, creating backfill opportunities.
Sales - Investment activity in 2009 is substantially lower than 2008 or 2007. Overseas pressures have resulted in institutions mainly disposing assets, and limited investment is now dominated by private investors and owner occupiers. Owner occupiers continue to view the suburban market as a cost effective alternative to the CBD in addition to reduced travel costs and time.
Outlook - Longer term, population growth and solid economic foundations will assist Victoria’s recovery and subsequent growth. In the shorter term, the slowing of the construction and high pre-commitments means the increase in vacancy levels will be capped. Backfill from major tenant vacations and subleasing will continue to dominate the market into 2010 when vacancy levels are expected to peak and then lower. Until this point, rents will continue to drop together with rising incentives to help tenants offset fitout and relocation costs. An increase in lease renewals can be expected as landlords become increasingly aligned with the market.