Vacancy rates for Australian offices are likely to rise further on new supply and should peak by the fourth quarter this year, setting the stage for recovery in 2011, research firm Jones Lang LaSalle said yesterday.
Yields on office properties peaked at 7.78 per cent in Q3 2009 with values falling 25 per cent from their peak in December 2007, but completion of new buildings will continue to push up vacancy rates, the research firm said.
‘There was a fairly large supply pipeline that was under construction before the financial crisis hit,’ said David Rees, regional director and head of research for Jones Lang LaSalle (JLL).
‘Although we are saying this is sort of the bottom of the cycle, we are not saying it’s going to be a big bounce back in 2010. It’s more of a ‘U’ rather than a ‘V’.’
An average office vacancy rate for central business districts (CBD) of major Australian cities is expected to peak at around 9.6 per cent in the October-December quarter this year, up from 8 per cent in the fourth quarter last year. The Sydney and Melbourne CBDs, both concentrated with finance and insurance companies, will likely be the first markets to recover, Mr Rees said.
‘Banks and brokers are back in hiring again, so demand for space is rising. And secondly, both of those markets have quite limited supply construction pipeline. So they don’t have a big overhanging space.’
Office rental growth will likely start to pick up in 2011, and Mr Rees expects a high single-digit to low double-digit growth over the next 2-3 years.
Meanwhile, the retail sector is on the mend with yields on regional malls peaking at 6.6 per cent in Q4 last year. But Mr Rees said rising interest rates and the withdrawal of the government’s fiscal stimulus measures will likely put a damper on consumer spending and limit rental growth for retail properties.
Source: Business Times, 23 Mar 2010