BRISBANE has emerged as the star performer as demand for Australian office space recovers with vacancy rates expected to continue a downward trend in 2011.
The state capital recorded the largest fall in vacancy in the CBD markets over a six-month period from 10.9 per cent to 9.4 per cent, according to the latest office vacancy data from the Property Council of Australia (PCA).
National office vacancy rate has dropped from 10 per cent in July 2010 to 9.5 per cent in January 2011.
David Prosser, CB Richard Ellis state director of office services, attributes an influx of mining companies in Brisbane to the shift.
“Confidence in Queensland’s resources sector has saved Brisbane’s vacancy rate from blowing out to the types of numbers some experts were predicting at around 14 per cent to 16 per cent (and) the ‘A’ and Premium grade markets have held up particularly well,” he says.
“Without doubt tenants have been focused on fitted out space and only now that many of the fitted out options are off the market are tenants looking more seriously at fitting out space themselves through the incentives on offer. With cost still a very important factor many tenants are still preferring to wait and keep looking if necessary.
“The overall vacancy rate in Brisbane is largely made up of ‘B’ and ‘C’ grade office space with properties such as 215 Adelaide St, 160 Ann St and 116 Adelaide St offering large chunks of contiguous space.
“2011 is likely to see a sideways movement in vacancy and demand. The resources sector is expected to continue to be strong but the impending supply additions of 123 Albert St and 111 Eagle St will mean net absorption will be weak.
“If confidence continues to return to the market in 2011 this will provide a significant boost for developers. Many large tenants have been reluctant to pre-commit to development sites as long-term workflow and staff numbers have been hard to determine. We are now seeing more tenants re-engaging with developers, which is a very positive sign.”
The latest office vacancy data indicates that the national office vacancy rate has dropped from 10.0% in July 2010 to 9.5% in January 2011.
National director of CBRE office services James Patterson, says demand for office space had strengthened moving into 2011 and the expectation was for more activity in leasing markets across the country.
“Business confidence is certainly positive and in Sydney we have seen the financial sector active and taking extra space,” says Patterson.
“One simple barometer to follow in our market is when recruitment firms are expanding or merging or when break-away groups open up and that is happening in some major markets.”
Patterson says demand may slow in Queensland following the recent floods as the market moved through a rebuilding phase.
The new PCA data highlights a slight fall in the vacancy rate for the Australian CBD markets, from 8.9% in July 2010 down to 8.6% in January 2011, while the non CBD markets, as defined by the PCA, fell from 12.2% to 11.3%.
Of the six main CBD markets, only Adelaide Core saw an increase (0.3 percentage points to 7.3%) in the vacancy rate over the six months to January 2011.
Melbourne CBD has maintained the lowest vacancy rate, recording a 0.2% fall over the period to 6.5%.
“This was driven by strong demand with net absorption reaching 31,795 sq m over the second half of the year,” says Patterson.
“It is difficult at this stage to ascertain the impact the floods may have on the Brisbane CBD market looking forward. Supply in Brisbane CBD is, however, likely to be strong in 2011 with OneOneOne Eagle and 123 Albert Street both due to complete in 2011 it is anticipated that the vacancy rate will rise again this year.”
Of the non-CBD markets, Brisbane fringe market achieved arguably the strongest result, with net absorption totalling 52,800 sq m in the six months to January 2011, reducing the vacancy rate from 12.2 per cent to 9.5 per cent over the period.
Other markets on the improve in terms of vacancy rates included Southbank (total vacancy rate 6.3 per cent), West Perth (5.2 per cent), Newcastle (11.5 per cent) and Sunshine Coast (14.2 per cent), where vacancy rates dropped by more than 1.5 percentage points since last reported.
“New development activity in the non CBD markets is expected to remain strong, especially as declining vacancy rates in the CBD markets force tenants to look at alternative office locations,” says Patterson.
CBRE global research and consulting senior manager Luke Nixon, says it’s the first time vacancy has fallen since the six months to January 2008.
Net absorption has also increased dramatically, with 299,373 sq m recorded in the six months to January 2011, well above the long-term average.
“Overall, net additions and net absorption are forecast to remain high in most CBD markets in 2011, with vacancy rates expected to continue their downward trend over the year,” says Nixon.
“Canberra is a notable exception to this and is likely to have seen the peak of the supply cycle in 2010. As a result most CBD’s are seeing rents begin to rise and incentives have already begun to fall in the CBD’s of Melbourne, Sydney and Brisbane CBD’s.”
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