Green Shoots Emerge In The Office Sector

By August 4, 2015 news No Comments
Green Shoots Emerge

Chris Goodwin of Goodwin Property Advisory says there is still plenty to smile about regarding the commercial property market particularly if you are a tenant.

The Property Council of Australia announced last Thursday the July office vacancy figures for the last six months showing the overall national vacancy rate had fallen from 11.2% in January 2015 to 9.7%. Melbourne and Sydney vacancy over the period fell from 9.1% to 8.1% and 7.4% to 6.3% respectively mainly caused by increased demand. Overall non-CBD vacancy rate fell from 10% to 9.7%. These figures appear to support some of the encouraging signs reported by both finance and property sectors. Colliers International Q1 Office Demand Index reported a 39% increase over Q1 2014 in enquiries for space nationally. The business sector mirrored these figures with a reported surge in confidence in May this year to its strongest level for twelve months.

This may be partly attributable to a weaker dollar, low interest rates and in part to the Small Business Package announced in the Federal Government’s latest Budget, which offered tax cuts, accelerated depreciation for assets and reduced red tape. Knight Franks CBD report showing Victorian employment rose by 121,500, a 4.3% increase on a year to year basis. This was the highest annual jobs gain in 20 years in Victoria which was the strongest performing state over 12 months.

The combination of the above factors has not necessarily meant tenants have been rushing out and leasing new space. Indeed many agents are reporting despite the increase in enquiry this has not translated into a rash of billable leasing deals with organisations being shy to commit. However there have been a number of large leasing transactions such as CrownBet and Jemena and furthermore a number of B grade building being taken out of the market for educational and residential development that may stem the increase in the overall vacancy rate.

Rental growth has been flat and net effective rents decreased nationally. Knight Frank have reported rental incentives have peaked and in Melbourne range between 28-32%. These levels would appear to be at the lower end of the scale compared to other national CBD locations. Increased levels of enquiry and general positive sentiment seem to back the overall consensus amongst agents that incentives will be lower in the next 12 months. This however may be deferred due to Reserve Bank forecasts for the economy having been revised down slightly since the February, largely reflecting weaker growth in China. The RBA predicts that this downward trend will remain in force for the next two years, but it will start to turn around by June 2017. While the latest employment figures from the ABS show a slight decrease in the unemployment rate to 6.0%, the RBA’s outlook for unemployment remains pessimistic for the medium term. You can therefore draw your own conclusion as to the likely foreseeable status for the office market which can only be a positive and put a smile on your face if you are looking to renew or lease new premises.

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