By Chris Goodwin - Goodwin Property Advisory
The Property Council office market report illustrates that the overall national office vacancy rate over the past six month has risen from 9.3% to 10%. Further examination will reveal large discrepancies across the capital cities with some centres out performing others dependent upon where they sit in the development cycle and respective demand. Overall opinion would seem to suggest vacancy rates are nearing a peak and will in the next six to twelve month period beginning to head south. So looking across the country we see the following trends for the past six months.
One of the stronger performing centres Melbourne has seen vacancy reduce from 6.6 to 6.5% off the back of strong tenant demand. Interestingly A and B grade vacancy increased from 4.5-5.5% and 8-8.4% respectively whilst Premium grade vacancy has decreased substantially by 4.7% to 5.9%. The outlook over the next two years does not look bright if you are a tenant with JLL forecasting a shortfall of quality office accommodation of 102,000 square metres, and Colliers predicting net effective rents to increase by 6% for Premium and A grade premises with incentives diminishing. Whilst there are a number of new developments in the pipeline difficulties in securing finance for such schemes will result in a shortage of new quality premises meeting the environmental qualifications of many corporate and government organisations.
Vacancy in Sydney’s CBD increased from 8.1% to 8.5% from six months ago. Negative demand has seen vacancy increase though with an improving local economy and the worst of the GFC over this situation is about to change. Colliers are forecasting vacancy rates as low as 3.4% by 2014.
Vacancy rose to the highest level since 2005 peaking from 8.2% in January to a 9.9% high in July. The cycle in Perth, similar to Brisbane, has been far more pronounced as the local economies have mirrored the fortunes of the resources sector. Between 2004 and 2008 the resources boom and lack of supply saw rentals grow 250%. This fuelled a renewed development cycle with new stock coming to the market during the midsts and tail end of the crisis. Four new buildings were completed in early 2010 resulting in a blow out in vacancy despite increased business confidence and strong absorption.
Brisbane similar to Perth has been caught up in the same development cycle. Brisbane’s vacancy has actually fallen in the past 6 months from 11.35 to 10.9% despite the availability of an extra 23,000 sqm. Whilst there are signs of increased economic confidence and demand the large oversupply of stock is likely to see rental levels remain static over the coming year or so.
With a glut of new space hitting the Canberra office market vacancy has blown out from 8.6 to 13.6%. Other problem areas include Chatswood and the Gold Coast where vacancy has deteriorated from 22.4 to 23.4% and 17.8 to 19.2% respectively – good news for local tenants!!
Market sentiment regarding the commercial property market is generally positive albeit concerns linger regarding overseas sovereign debt and availability of investment capital. Should the Australian economy continue to perform then supply issues and rental inflation will no doubt have a severe impact on the ease with which company’s can grow and bottom line profitability particularly for those located in Melbourne and Sydney.
With “a glass half full” outlook on the market commercial tenants would be well advised to consider taking advantage of the low rental levels and attractive incentive still being offered before these factors are reversed. Securing adequate space for future growth and locking in occupational costs today for the foreseeable future may well overcome the angst of negotiating in a market heavily weighted towards the landlord that is likely to occur over the next few years.
Chris Goodwin is the Principal of Goodwin Property Advisory whom specialise in the provision of independent real estate advice to tenants and occupiers of commercial and industrial premises.www.goodwinpropertyadvisory.com.au