DEMAND for Australian office space is recovering with vacancy rates expected to continue their downward trend over 2011 but it will take seven years for available stock to be absorbed on the Gold Coast.
The latest office vacancy data from the Property Council of Australia (PCA) indicates the national office vacancy rate has dropped from 10 per cent in July 2010 to 9.5 per cent in January 2011.
Tania Moore, senior director with CB Richard Ellis Gold Coast, says 2011 will see an improvement in the uptake of space. It is expected the June property report will indicate significant deals in the last quarter across properties at The Rocket (pictured), Southport Central Tower 3 and The Oracle in Broadbeach, which were not included in the latest report.
“We had a slow first nine months of 2010 and then we had a significant increase in transactions in the last quarter,” says Moore.
“The current reporting period to 31st December 2010 does not reflect the new commitment to space that occurred within the last two months of the year which saw Allconnex Water secure 3533sqm at The Rocket in Robina, which was the third largest leasing deal ever concluded on the Gold Coast and a number of commitments at The Oracle development.
“There was healthy take up in the Southport precinct during the second half of 2010 which was mainly attributed to Southport Central Tower 3 where owner occupiers took advantage of a receiver strata sell down campaign of over 14,000sqm which had been predominantly vacant since late 2008.”
Rental rates and incentives are remaining steady but there’s a ‘flight’ to new stock where attractive incentives are being offered. This has caused an increase in vacancy in lower grade properties.
Moore says owners of these cheaper properties will need to undertake refurbishment programs if they are to retain existing tenants and secure new businesses.
“It is still anticipated that it will take up to seven years to absorb the current vacancy to an equitable level for both owners and tenants, however there are a number of major infrastructure projects which should create take-up in the market over the next 12-18 months,” she says.
“We also anticipate there may be some interest from large Brisbane CBD businesses seeking to establish disaster recovery centres on the back of impacts to the business operations during the recent Queensland floods where a significant portion of businesses where shut down whilst building services were re-established.”
The commercial division of Ray White Surfers Paradise Group is experiencing a shift in confidence brought about by new product and a rationalisation of rates, where in some instances square metre prices have fallen from $550 to $350 per sq m.
Ray White joint managing director Greg Bell, says the ‘air has been taken out of the bubble’.
“We’re seeing a sentiment change and there’s a lot of interest from interstate buyers who see the Gold Coast as good value,” says Bell.
“We have definitely hit rock bottom and now we begin the slow recovery. Industrial plus office space is starting to accelerate. There are new businesses entering the market and others that are expanding.”
CBRE global research and consulting senior manager Luke Nixon, says it’s the first time vacancy has fallen since January 2008.
National 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.”
CBRE national director of office services James Patterson, says demand for office space had strengthened moving into 2011 and the expectation was more a much more active year 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,” he says.
“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.”
He warned that demand may slow in Queensland following the recent floods as the market moved through a rebuilding phase. The largest fall in vacancy in the CBD markets over the six month period was in Brisbane CBD where vacancy fell from 10.9 per cent to 9.4 per cent.
“This was driven by strong demand with net absorption reaching 31,795 sq m over the second half of the year,” says Nixon.
“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.”
Read Gold Coast Business News' interview with Allconnex Water CEO Kim Wood in the February issue, available in more than 450 newsagents from next week.
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