Commsec point to a rise in full time employment in both March and April, as a result of the surge in job advertisements at the commencement of 2010. Employment is expected to remain strong into the second half of 2010, which translates to increased tenant requirements for accommodation.
Whilst the office market is strengthening nationally, Melbourne and Sydney are predicted to lead the charge over the next twelve months, with Canberra, Adelaide and Brisbane all faring poorly through the GFC.
Melbourne is already demonstrating this recovery based on confidence, growing local economy and return to growth of the professional services industry. Despite a final series of pipeline construction projects entering the market, (largely pre-committed in the Docklands area) the tenant demand remained stable this quarter due to increasing leasing activity. Incentives have held firm and net rentals are on the rise. Capital values have held firm, and investment activity has been dominated by private investors together with owner-occupiers now entering the market. Whilst Melbourne still has plenty of development site potential, the GFC has caused all major builds to be placed on hold with foreseeable medium term supply issues by 2013. These supply issues will lead to rising rents, lowering vacancies and falling incentives. Due to oversupply Melbourne has traditionally lagged behind the asking rentals of Sydney, Brisbane and Perth and Melbourne’s rentals could be corrected by up to 30% over the coming three years. The predicted increase in rents will continue to the flow-on of CBD tenants seeking suburban office space, particularly in the CBD fringe and inner east, and to a lesser extent the outer east and south eastern suburbs.
Sydney by comparison is a more mature office market which is less influenced by the peaks and troughs of the construction cycle. The city will see slower recovery and whilst vacancy rates rose for the fourth consecutive quarter, the rate is slowing and expecting to track downwards by the end of 2010. Early 2010 job growth and rising business confidence has led to an increase in leasing enquiries and activity together with much of the 2009 subleasing being withdrawn from the market. In the last quarter Sydney rents remained stable, incentives remained high (at 25 to 30%) and whilst supply increased, the demand also increased causing vacancy to remain stable. Sydney’s outlook is increasingly positive and employer confidence in the professional services and financial service industries in particular will fuel a strengthening office market.