Tag Archives: Australia Commercial Property

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

Investment activity in both the retail and industrial sectors has declined over the past 12 months

COMMERCIAL property values across Australia have dropped in the past 18 months in line with the global economy. Although the timing has varied, the decline has been observed across all capital cities and commercial asset types.

Melbourne and Sydney have fallen less than Brisbane and Perth, with the dichotomy in economic performance over the past three years amplifying the performance of commercial property.

As commercial property yields are affected by current rents and future rental growth, tenant demand and the volume of vacant supply are the major considerations when determining value. The availability and cost of debt and its relationship to the safe return of a 10-year government bond, provide the investment market an indication of the expected returns for a long-term commercial property investment.

Office markets have been among the hardest hit with values falling by 15 per cent to 25 per cent nationally. This has resulted in yields (rent/value) for prime quality assets increasing by around 100 basis points in most capitals from about 6 per cent to more than 7.5 per cent.

Melbourne and Sydney enjoyed relatively solid economic performance in the years leading up to the global financial crisis, which limited speculative activity and kept a lid on office floor space in the development pipeline. As a result, yields compressed to 5.5-6.5 per cent for prime assets as debt became increasingly accessible. Continue reading →