Nationally office, industrial and retail property prices remain very strong on the back of strong investor demand, particularly from Chinese and Asian investors. Generally, rents in Melbourne and Sydney are rising and vacancy rates falling whereas in the resource based states of Perth and Brisbane conditions are weaker.
The completions of 180 Ann St, 480 Queen St and 1 William St will significantly add to the supply of CBD office space. BIS Shrapnel and JPMorgan have forecast that Brisbane’s CBD office vacancy rates will peak at 20% this year with a large amount of new stock coming onto the market.
Similarly vacancy rates in the fringe markets remain relatively high at 12.5% and rents being subdued by the current discounting in the CBD. Fortitude Valley, Newstead and Teneriffe vacancies have declined to 10% from 14%. Milton’s vacancy rate has increased to 20% from 17% and is expected to worsen with Origin Energy expected to relocate approximately 20,000m2 to either Newstead / Teneriffe or Southbank / West End. Toowong’s vacancy rate remains steady at 10%.
Amenity, public transport and access to the CBD remain at the top of the list for the commercial market which in part explains Milton’s decline. The other issue for Milton is the age of its buildings. Similarly Spring Hill is a declining office market with older commercial properties being withdrawn for residential conversion.
Source - Savills / Colliers
With increasing vacancy levels in the CBD and Milton, office rents can be expected to remain subdued and incentives high for the forseeable future. Whilst yields are generally reflective of the cash rate rather than the health of the commercial market, they are susceptible to the global economy in particular if the Chinese government regulates the amount of money leaving the country.
The next few years will present opportunities to purchase commercial buildings well serviced by public transport and worker amenities based on subdued rents that in the longer term will increase with an improving economy and declining market supply thereby increasing investor return.