Sydney, 28 November 2013 - Strong investor appetite for Australian office property continues to underpin high levels of transactional activity in most markets nation-wide, new research shows.
CBRE’s Q3, 2013 Australia Office MarketView report found that despite softer occupier markets, investors – both domestic and offshore – continue to target office assets around the country, injecting $3 billion into the market over Q3.
Sydney CBD accounted for $785 million worth of sales during the quarter, with major transactions including 200 George Street, a 50% stake in 1 Martin Place and 50 Margaret Street. North Sydney sales for the period totaled $250 million.
Brisbane and Melbourne recorded $242.9 million and $231.4 million worth of sales in the three months to September. By comparison, Perth experienced a quiet quarter on the sales front following the $434 million sale of the Kings Square development site to DEXUS and the Allendale Square to Mirvac Group for $231 million earlier in the year.
CBRE Senior Research Manager Claire Cupitt said while conditions remained largely subdued in Australia’s office market, there were several pockets of growth across the country.
“It is anticipated that the demand for space over the next few years will be largely driven by the business service sector in line with broad sector based economic improvement,” Ms Cupitt said.
Although growth and investment prospects for Australia’s office markets remains optimistic, the report shows weakening business investment across the board has prompted occupiers to increase their focus on preserving margins.
As a result of occupiers adopting cost saving measures, employment growth in the office market has slowed markedly, while a number of CBD tenants are also consolidating or contracting operations and therefore, space requirements.
“The impact on Australia’s office occupier markets has been seen in negative net absorption in all major markets so far in 2013,” Ms Cupitt said.
In 2013, a total of 170,000sqm of negative net absorption is due to be recorded in all major CBDs nationally – 30,000sqm more than in 2009 during the depths of the Global Financial Crisis.
The Brisbane office market has been the most heavily impacted, with the CBD recording circa 90,000sqm of negative net absorption due to the Queensland state government and resource service companies continued removal from the leasing market.
The report shows contrary to historic trends, there is a relatively high volume of foreign capital entering Australia’s property markets, with active buyers including China’s Bright Ruby, Singapore’s Hiap Hoe and Rockworth and TIAA CREF and Hines from the US.
“The impact of strong foreign and local investor interest has been seen through some compression in prime office yields across the Sydney, Melbourne and – to a lesser extent – the Brisbane CBDs,” Ms Cupitt said.
In Sydney, prime yields are anticipated to hover at 7.20% by the end of 2013 – down 30 basis points from December 2012, while Melbourne prime yields are expected to average 6.8% at the end of the year.
Brisbane prime yields are forecast to average current levels of 7.70% at year end and Perth yields are also expected to remain steady at 8.00% into early 2014.
On the rental front, no growth was recorded during the quarter nationally, with most capital city markets remaining unchanged in the three month period.
In Sydney, Melbourne, Brisbane and Perth, there has been a rise in sublease availability and incentives – in some cases to historic highs. Space consolidation and contraction accounts for approximately 80% of sublease availability in the Sydney CBD.
Regional Director of Office Services Andrew Tracey said in line with the shift in sublease availability, incentives had increased in most markets.
“The deals on offer are compelling and reflect an ‘under demand’ scenario in the occupier market, rather than a serious supply issue,” Mr Tracey said.
“We are now seeing clever businesses take advantage of this window, moving to lock in future occupancy costs with the generous incentives on offer. They can move, upgrade their environments, attract better staff and not hit their bottom line.”
Melbourne and Brisbane CBD incentives are currently around 30%, while Perth CBD incentives also continue their upward momentum, with expectations of 14% by the end of the year.
In line with the current office market climate, vacancy rates nationwide currently hover at 10.1%, with several capital city markets experiencing record high availability. Melbourne vacancy rates have peaked at 9.8% - up from 7.0% in July and Brisbane’s CBD has reached an unprecedented 14.1%.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.