Economy to support improved demand in office leasing market
Economy to support improved demand in office leasing market
6 April 2014
Sydney, 6 April 2014- Favourable
economic conditions in the second half of 2014 should provide the basis for the
return of tenant demand, according to a new report.
Office Marketview for Australia, reports that improvements in the consumer,
housing and export sectors is expected to remove some pressure from tenants’
business top-line performance from late 2014.
the report comments that due to a strong supply pipeline, market vacancy will
likely rise over the next 2-3 years.
the investment market, sales totaled $4.26 billion in the fourth quarter, up
from $3 billion in Q3 and a 127% increase on the same period in 2012.
of the report, CBRE’s Associate Director of Research, Claire Cupitt, said that
it was widely recognized that 2013 was a historical low point for tenant demand
across Australia, with the eastern seaboard markets most overexposed.
an attempt to preserve valuations, net face rents were largely sustained.
However, soft leasing activity, higher vacancy and record levels of sublease
space on the market saw incentives rise across the board and effective rents
fall,” said Ms Cupitt.
key to improved occupier markets is a growing employment base, which we expect
to see concentrated in the second half of 2014. Directionally we are about to
turn the corner, but the improvement will be slow.”
strong supply in the CBD markets is the most concerning aspect for the office
market. Over the next three years supply is set to outweigh demand which
despite the improving demand, will still have a pronounced effect in Melbourne
and Perth, followed by Sydney and Brisbane.
the supply/demand imbalance, our assessment of effective rents remains to the
downside with further increases in incentives offered in order to support face
rents on the eastern seaboard. In contrast we expect Perth CBD incentives to
peak above 27% in 2015.”
Supply average p.a. 2014-2016
Andrew Tracey, Regional Director Office
Services Pacific comments “ Nationally we are seeing leasing markets starting
to get more active with more enquiry and tenants starting to make decisions
rather than just sitting on their hands, the penny has dropped and they are
taking advantage of the market.”
In the Sydney leasing market,
employment has been weak providing challenges for the over 2013. Over
365,000sqm of new office space is forecast to enter the market in the next four
years, 142,000sqm in 2015 (largely Barangaroo). Prime net face rents are likely
to remain relatively steady over 2014, following no change in Q4, 2013.
Melbourne’s CBD vacancy rate fell from 9.8% in July 2013
to 8.7% in January 2014. This was largely due to withdrawals of stock for
refurbishment or residential conversion rather than a recovery. The Docklands
precinct performed well, with 97,961sqm of net absorption over the year. This
was due to several corporate companies consolidating their operations including
NAB, Marsh Mercer and CBA.
Brisbane saw net absorption of negative 98,800sqm over
2013, its worst result on record. The next major building in the CBD will not
be finished until 2016 however (1 William Street), which should allow for some
of the existing space to be leased.
Perth’s CBD vacancy rate rose from 6.9% in July 2013
to 9% in January 2014, with negative net absorption of 33,938sqm over the last
six months. Engineering companies that are heavily reliant on resources sector
contracts have placed a considerable amount of sublease space back onto the
Office markets in Adelaide offer a
degree of stability with less volatility in absorption, vacancy and rental
growth than the eastern states. New supply is forecast to remain contained over
the next 2-3 years. The next major addition, 50 Flinders Street, is currently
under construction and due for completion in 2016.
Prime assets are still favoured by investors
in the Sydney CBD, although secondary assets are beginning to gain
traction. Despite a weak occupier market, both foreign and domestic investors
have been attracted to the relatively high yields compared to other major
global office markets. Throughout Q4, Sydney saw over $250 million worth of
office sales in the CBD. Strong sales activity also continued in North Sydney
in Q4, as investors looked outside the crowded CBD market. ARA Asset Management
purchased 177 Pacific Highway, North Sydney for $413.2 million in November.
Melbourne CBD saw total sales of $1.1 billion in the
fourth quarter, which included 735 Collins Street to CIMB-TCA for $279 million
and 367 Collins Street to Mirvac for $228 million. Competition for good quality
investments was high with sales volumes transcending that of the 2010 high.
Interest still remains high in the St Kilda Road market, with one large
transaction in the quarter – 420 St Kilda Road which sold to Chip Eng Seng for
Q4, 2013 was a strong quarter for investment
in Brisbane, with sales volume totalling $1.1 billion. CBD assets
selling in the quarter included a 50% share in 1 William Street for $396.7
million and 179 Turbot Street for $172.3 million. Major sales in the near city
included 15 Green Square Close for $110 million and 154 Melbourne Street for
$71.5 million. Annual sales volumes reached a record $2.5 billion in the CBD
and $787 million in the near city/suburban market.
Investor interest was strong in Perth in
2013, with sales in the CBD totalling $1.3 billion for the year. Only five
transactions were recorded, however, two became the highest office sales on
record – Raine Square for $458 million to Charter Hall and Kings Square for
$434.8 million to DEXUS. Prime yields average 7.95% as of December 2013,
tightening by five basis points during Q4. This was the first move in 12 months
and due to considerable demand from investment funds for premium assets with
long term leases in place.
Adelaide showed a solid demand for quality stock in
the tightly held market. Major sales in the office market totalled $178.4
million in 2013 and included 45 Pirie Street for $87 million and 101 Grenfell
Street for $43.1 million. Prime CBD yields tightened by 50 basis points to
8.25%, while secondary assets also tightened. Yields have tightened
consistently year or year in the last four years.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.