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Office sector booms Down Under

Regional centres like Canberra, Hobart, Perth and Brisbane have taken off

WHAT do the office markets of Perth, Brisbane, Canberra and Hobart have in common with Moscow, Warsaw, Barcelona, Tokyo and Singapore? They are all experiencing acute low office vacancy rates not seen since the beginning of the century and the momentum built up over the last few years does not seem to be slowing down.

While the major office markets of Sydney and Melbourne have seen a more subdued take-up of office space in their central business districts (CBDs), the real boom stories in Australia have come from the regional centres of Canberra, Hobart and especially Perth and Brisbane.

Office vacancy rates throughout Australian CBD’s now stands at 4.3 per cent according to the Property Council of Australia and 6.0 per cent in suburban office markets, but these figures mask the historic lows being experienced in the resource boom cities of Brisbane and Perth.

The rapid expansion of the Chinese and Indian economies has made Australia the place to go for natural resources and that means the states of Queensland and Western Australia are not able to get the coal, iron ore, lead and copper out of the ground fast enough or onto the ships quickly enough. This has led to a mass movement of people from around the world to work in the mines, processing plants and offices. Not withstanding the boom in the mineral sector, the wider Australian economy has had 16 years of continual growth.

With the prices of natural resources at historic highs, mining and engineering companies have been pouring investment into their facilities in order to capitalise on the boom and that has led to an increase in demand for office space in the cities closest to their assets. The vacancy rate in Perth is now below one per cent, which means that any new arrivals in the city looking for space are going to be disappointed.

Supply won’t improve soon

In Brisbane the picture is much the same with vacancies at 1.2 per cent in the CBD and space in the city fringe is going fast. The supply of office space for both cities is not going to improve any time soon as the next phase of construction will not deliver any new significant product until 2008/9. This low vacancy rate has had a subsequent effect on rents with CBD rents in Brisbane rising by about 70 per cent in 2007 alone.

While Sydney has lagged Perth and Brisbane in terms of take-up, all the major cities are on the same construction cycle. With financial services in particular driving the demand for space in Sydney, we could soon see vacancy rates down below 5 per cent within the next year, with much of the new stock coming onstream in the next year or so already precommitted. Current vacancy rates are at their lowest since July 2001. Melbourne has seen a much more modest increase in take-up figures and this is expected to plateau in the next few years as refurbished space starts to come back onto the market. As such, rental growth has been much more subdued with Perth and Brisbane both surpassing the levels seen in Melbourne and Sydney.

Canberra has seen vacancy levels drop due to the expansion in the governmental sector. Despite new buildings being added to the overall stock, the insatiable appetite has seen vacancy levels only 0.1 per cent above that of Brisbane.

Hobart has always had a small office sector and, as such, vacancy levels are traditionally lower than those in other Australian cities, and they have been below 4 per cent since January 2005.

There is no doubt that the landlords in Perth and Brisbane have waited a long time for this explosion in the office sector, and this may very well prove to be a once-in-a-lifetime opportunity. Investors are naturally very interested in these markets. However, sourcing opportunities are proving to be difficult as existing landlords cash in on the hot leasing market.

Australia has also benefited from an increase in immigration which has enabled the economy to continue on its positive upswing. Average gross domestic product (GDP) growth over the last 16 years has been approximately 3.7 per cent a year which, together with the quality of life factors, has made Queensland and Western Australia very attractive places to live and work.

 

Source: Business Times 11 Oct 07

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