KEEP UP TO DATE WITH MARKET NEWS

AFR, 23 June 2011
By Ainslie Chandler

Vacancy rates and leasing incentive levels are expected to fall in most Australian capital city office markets, as economic growth bolsters corporate expansion plans.

The Property Council of Australia's Autumn office market forecast report shows Perth narrowly pipped Sydney as the most expensive CBD market, at $837 a square metre, compared with $833 a sqm in Sydney.

The WA capital is expected to remain in the top position until next January, with a forecast prime gross face rent of $859 a sqm, compared with Sydney's $849.

Brisbane rents are tipped to rise from $691 to $697 by January, while Melbourne rents are expected to move from $577 to $595. Adelaide is expected to move from $478 to $506.

Of the major office markets, Melbourne had the tightest vacancy rate at 5.5 per cent, with Perth second on 6.6 per cent. Forecasts tip both to tighten further by January, to 4.9 per cent and 6.1 per cent, respectively.

Brisbane is the only major CBD market where vacancy is tipped to rise from 9.2 per cent to 9.8 per cent between now and January as new supply exceeds demand.

Rod Cornish, head of real estate strategy at Macquarie Capital Investors, said office markets such as Sydney and Melbourne, were linked to global markets and with the US economy improving, demand for office space should continue to solidify.

"While the Australian economy will be running below trend in 2011, the global economy, and in particular the US economy, will be improving, and global share markets will be reasonably firm," Mr Cornish said.

"This will create a more solid environment for office markets...because office markets in Australia are more correlated to US GDP than with the Australian GDP."

Colliers International national head of research Nerida Conisbee said Melbourne was likely to outperform in the coming year, with limited new supply pushing rents up.

"Sydney CBD will see the strongest net absorption in the next 12 months, however as Melbourne CBD vacancy has now peaked and there is limited supply, it will see the strongest rental growth and yield compression," Ms Conisnee said.

However, CB Richard Ellis's John Chand expects Sydney to be the best performer, with strong net rent growth from this month, driven by a strengthening banking and finance sector.

The improving office markets mean tenants need to start examining their future office space needs well in advance of their lease expiry, according to Jones Lang LaSalle.

Perth and Melbourne are already working in landlords' favour and Sydney is balanced but expected to shift in landlords' favour by 2012, according to JLL.

Brisbane is still favourable to tenants but is expected to become balanced next year.