Suburban Offices Set to Surge

Over the past few weeks, you have been reading articles about the various Office markets around Australia.

As such, you would now be aware of how each capital City compares, in relation to its … Vacancy rates … Rental levels … and expected Capital growth.

 You can expect definite Rental Growth in the city fringe.However, most of that commentary has been focused upon CBD Offices. And as a result, people have been enquiring about just how the Suburban Office markets are also likely to perform, over the next few years.

Clearly, a rent differential exists between the City and Suburban Office markets. And obviously, that rental gap will also vary, as you move around Australia. [Read more…]

Asian Thrust will Prove Good for
Australian Commercial Property

Following the global financial crisis, the extent of trade imbalances has eased somewhat between Advanced Western economies and the Emerging Asian economies.

The gap between China’s huge current-account surpluses and America is out-of-control deficits may have temporarily narrowed. But the IMF believes the massive disparity will return, as world economic activity improves.

The ups and downs of exchange rates and capital movements are seen by the US and the Western economies as a method of ensuring a proper allocation of resources.

Whereas, it seems Asian countries view exchange rate movements as an annoying distraction from controlled expansion of their “home” economies. And amassing foreign currencies is seen as the best protection against a re-occurrence of the 1997 Asian financial crisis.

How will this affect Commercial Property Investment?

China’s stated goal of 7% growth over the next five years (plus its dependence upon coal, iron ore, LNG and nickel) will provide enormous economic upside for Australia.

On this basis, China’s contribution to global economic output will rival that of the European Union within five years; and even the US, within the next 10 years.

While Australia’s mining boom may help to create a “two-speed economy” … the flow-through benefits will be felt by everyone — to a greater or lesser extent.

Clearly, the growing mining (and mining-related) sector will need to be physically accommodated.

Similarly, the support services and businesses like … accountants, lawyers and the merchant bankers … will all need to engage more staff. And that means we’ll need to construct more office buildings to house them.

Bottom Line: Until we do that (which can take between 3 to 5 years), rentals for both CBD and suburban Office space will continue to escalate those capital cities where the vacancy rates currently sit at around 7%, or below.

Therefore, right now, that means you should be looking to snap up something in Melbourne, Sydney or Perth. And then, ride the current growth cycle through to 2018.


Office Activity: CBD vs Suburban

Commercial Buildings
In several recent articles, we discussed the growing health of the CBD Office markets around Australia.

Melbourne still leads the other capital cities with a CBD vacancy rate of 6.2% at the end of March.

And according to Savills’ latest Office Spotlight, the number of whole floors within the city of Melbourne has fallen by some 35% — from 60 to 39 available floors, as at January 2011.

It seems that CBD tenants are scrambling to lock in larger areas, to allow for growth and avoid the expected huge rent increases over the next 5 to 7 years.

Office VacanciesAs a result, many mid-sized tenants are being pushed out into suburban locations. In turn, this is causing these vacancies to fall and rentals to rise.

As such, Melbourne’s suburban vacancy rate (at 5.8%) is now below that for the CBD.

And Colliers Research believes this could fall below 4% over the next 12 months — through a shortage of new space coming onto the market.

Likewise, Sydney and Brisbane have seen their suburban vacancy rates also decline. And net prime face rents in North Sydney are now up over $600 per sqm.

It would appear only Adelaide’s suburban Office leasing market has remained soft — despite several major sales putting some downward pressure on yields.

Bottom Line: Fundamentally, all the signs are there for continued growth in Commercial rentals and capital values over the next 5 to 7 years — despite the global backdrop creating hesitation for some investors, who are not part of the “Inner Circle”!

Private Investors Vs the Institutional Buyers

Private Investors continue to dominate the Melbourne Commercial Office market.

Right now, sales around $20 million are slow; and over $40 million are few and far between.

Suburban Office Sales

Suburban Office Sales

However, the suburban market for properties under $3 million enjoy solid demand from cashed-up private Investors.

Research by Knight Frank shows that last year saw $240 million recorded in suburban Office Sales. And already this year, they have totalled some $100 million.

And 97% of those sales have been to Private Investors.