tayser
February 10th, 2005, 12:33 AM
Turning around but don't celebrate yet
Kathryn House
10 February 2005
Overview NATIONAL OFFICE VACANCIES
The tide is finally turning for Australia's major office markets.
Vacancies rates are dropping in most cities and tenant demand is kicking in according to figures from the Property Council of Australia.
But don't break out the bubbly just yet. Office landlords were yesterday told to expect a slow turnaround, with no expectation of any significant movement in office rentals in the short term.
UBS director of real estate research John Freedman dubbed it a "muted recovery", while Knight Frank research manager Michael Kingcott warned the audience at yesterday's PCA office market breakfast in Sydney that it was still "early days".
Mr Kingcott said: "I am cautiously optimistic the worst has passed, particularly for the Sydney market, but I don't think there's going to be a wholesale boom on the horizon. There's a fundamental change starting to happen but I don't think it will be quick."
Macquarie Office Trust chief executive Simon Jones said the recovery would depend on how quickly improved tenant inquiry converted into deals, although he pointed to a sea change in the market.
"It's interesting to note last year was a turning point in the sector," Mr Jones said.
"It was a year of tenant expansion and growth. Tenants aren't kicking tyres any more, they're actually doing deals."
The real surprise out of yesterday's PCA numbers was the performance of Sydney and Melbourne during the past six months.
While the national vacancy rate dropped back by 0.4 per cent to 9.4 per cent buoyed by the strongest net absorption figures in four years it was Melbourne that led the pack, not Sydney.
While most analysts had expected the Sydney CBD vacancy to improve it instead rose from 10.3 per cent to a seven-year high of 11.2 per cent.
Even though tenant demand picked up in Sydney, it was not enough to offset the new supply coming on stream in projects such as Latitude at World Square.
Sydney was in fact the only CBD market where vacancies rose, giving the city the second highest percentage of vacant offices in the country behind Perth.
At the same time, Melbourne defied the doomsayers, although it appeared to be a short-term reprieve given the amount of new office supply to come on stream.
The Melbourne CBD vacancy dropped from 10.2 per cent to 9.8 per cent underpinned by strong tenant demand. Indeed, the Melbourne CBD recorded by far the strongest net absorption of space in the country in the December half, its highest rate in 18 years and double that of Sydney.
But with a raft of new office towers under construction, Mr Jones warned against being overly optimistic. "I don't think we'll be sitting here with such a rosy outlook on Melbourne next year," he said.
That said, Melbourne was yesterday enjoying its day in the sun. The PCA ranked Melbourne, Brisbane and Canberra as the big winners during the past six and 12 months, after all three cities recorded strong net absorption.
The big losers were Australia's suburban markets. This was despite persistent talk that tenants might increasingly consider decentralising their operations.
While all of the CBD markets posted positive net absorption numbers in the December half, the figures were negative for more than half of the suburban markets surveyed by the PCA.
North Sydney and Chatswood were ranked as the biggest losers, with the situation most dire in North Sydney, where net absorption was negative by 21,922 square metres.
The other trend highlighted in yesterday's figures was a flight to quality by office tenants, who have taken the opportunity to cash in on cheaper rentals and upgrade their accommodation.
__________________________________
City still waiting for recovery
Kathryn House
10 February 2005
Sydney NATIONAL OFFICE VACANCIES
SYDNEY CBD Snapshot Jan 05
Vacancy rate 11.2%
Total stock 4,574,366 sqm
6 mth net absorption 37,559 sqm
What happened to the Sydney CBD? With tenant demand picking up and office leasing improving, most analysts were forecasting a long-awaited turnaround in the city office market. However, yesterday's Property Council of Australia's figures show the market recovery is yet to kick in, with new supply still outweighing net absorption.
Overall the outlook seems positive. The PCA's NSW executive director, Ken Morrison, said there were encouraging signs that demand for office space had "turned the corner".
However, it may take until later this year for that pick-up to translate into lower vacancies and fewer tenant incentives in the CBD.
According to the PCA, the total city vacancy is now 11.2 per cent, the highest level in seven years and up from 10.3 per cent in July.
On the flip side, net absorption was positive for the first time in three years, with 37,559 square metres of space absorbed in the past six months and much less sub-lease space in the market.
The dampener was new supply, with 112,926 sq m of space added to the market more than half of that in the new Ernst & Young Centre at World Square.
With only moderate amounts of new space still to come on stream, most analysts are confident about the outlook for Sydney, although there is some debate about the likely speed of the recovery.
Knight Frank research manager Michael Kingcott expects the upturn to be quickest in premium and A-grade space, as tenants upgrade to better-quality accommodation.
However, he warned yesterday that leasing conditions would stay "competitive" this year.
Savills national leasing director Rob Dickins is tipping face rents to remain relatively flat until tenant incentives drop below 15 per cent from the present average of between 20 per cent and 25 per cent.
He is confident of that happening by early next year as options for tenants become more limited, particularly for users wanting more than 4000 sq m of space.
"We're cautiously optimistic and positive about the way the year is going to unfold," Mr Dickins said.
Macquarie Office Trust chief executive Simon Jones said there was already anecdotal evidence that landlords were saying no to some of the incentives requested by tenants.
"That's where you see the balance starting to shift," Mr Jones said.
At yesterday's PCA breakfast, he jokingly compared leasing conditions in the past three years to a "marathon sale".
"The good product left the shelves and last year's discounts won't last the full 12 months," Mr Jones said.
One positive for the market will be stronger white-collar employment, according to Jones Lang LaSalle, which issued its own set of office market statistics yesterday.
JLL uses different methodology to the PCA and includes leasing intentions in its data. Its numbers were more positive for Sydney, showing 42,000 sq m of net absorption in the December quarter the highest in the country and the strongest result for Sydney in four years.
That translated to 53,000 sq m of net absorption for the December half, but even JLL had the CBD's vacancy rising, from 11.9 per cent to 12 per cent. JLL research director Jane Murray said white-collar employment had fallen slightly in 2004 but was expected to at least keep pace with gross domestic product growth this year.
____________________________________
Fancy footwork leaves landlords smiling
Karina Barrymore
10 February 2005
Melbourne NATIONAL OFFICE VACANCIES
MELBOURNE CBD Snapshot Jan 05
Vacancy rate 9.8%
Total stock 3,363,282 sqm
6 mth net absorption 76,611 sqm
Melbourne CBD landlords learned a new dance step, the hot shoe shuffle, as they scrambled during the past few months to sign up tenants and avoid the widely tipped rise in vacancy rates.
The quick action has paid dividends. The Melbourne CBD vacancy rate has fallen from 10.2 per cent to 9.8 per cent during the past six months.
Melbourne was just one of only a handful of office markets around the country to record a drop in vacant office space, according to the latest Property Council of Australia surveys.
However, it's not all positive for the Melbourne market, with the latest statistics somewhat of a smoke and mirrors result.
The inclusion of the Docklands precinct in the CBD survey has painted the city in a much brighter light. Construction delays, notorious in the Victorian market, have also aided the latest vacancy results.
After stripping out the Docklands from the latest survey, there has been no improvement in Melbourne vacancies, although most commentators said this was still positive because they were expecting vacancy levels to rise.
Based on the original CBD boundaries, the latest PCA survey produced a vacancy rate unchanged from six months ago of 10.2 per cent.
According to Knight Frank research manager Glenn Lampard, the net absorption figures for the Melbourne survey reflected the large take up of space in the Docklands, not the CBD. "The inclusion of the Docklands precinct has skewed the figures a little," he said.
And according to Charter Keck Cramer director Rob Papaleo, the delay in construction of many of Melbourne's new high-rise office buildings also aided the strong vacancy result.
Mr Papaleo said that several major office towers, including Australand's Freshwater Place and 11 Exhibition Street, were behind construction schedule.
This had already been factored into the hefty vacancy forecasts of two years ago which predicted empty office space to reach up to 15 per cent in the next two years.
Both commentators agreed that the construction delays had benefitted the rates in the latest survey but said it only temporarily deferred some of the vacancies.
Property Council of Victoria executive director Jennifer Cunich welcomed the fall in the headline rate and was also optimistic about the amount of new supply about to enter the market. "While future supply in the CBD appears hefty, with over 260,000 sq m to come on line in the next two years, the majority is pre-committed; about 70 per cent in 2005 and a further 54 per cent in 2006," she said.
The biggest improvement in the latest survey was recorded in A-grade office stock, with vacancies in these buildings falling from 10.3 per cent in July last year to just 7.9 per cent at January 31, 2005.
The worst performers were Melbourne's B-grade office properties, with vacancies jumping from 9.2 per cent to 11.1 per cent.
The PCA survey also found high-profile landmark towers, known as premium office buildings, also fared well in the shoe shuffle, with vacancies falling from 6.4 per cent to just 4.9 per cent during the past six months.
Melbourne's St Kilda Road precinct was a strong performer, with vacancies falling from 13.2 per cent to 10.9 per cent as businesses relocated to the precinct and existing corporations increased their space under lease.
Southbank also saw a fall in empty space from 8.8 per cent to 8.4 per cent during the past six months.
Kathryn House
10 February 2005
Overview NATIONAL OFFICE VACANCIES
The tide is finally turning for Australia's major office markets.
Vacancies rates are dropping in most cities and tenant demand is kicking in according to figures from the Property Council of Australia.
But don't break out the bubbly just yet. Office landlords were yesterday told to expect a slow turnaround, with no expectation of any significant movement in office rentals in the short term.
UBS director of real estate research John Freedman dubbed it a "muted recovery", while Knight Frank research manager Michael Kingcott warned the audience at yesterday's PCA office market breakfast in Sydney that it was still "early days".
Mr Kingcott said: "I am cautiously optimistic the worst has passed, particularly for the Sydney market, but I don't think there's going to be a wholesale boom on the horizon. There's a fundamental change starting to happen but I don't think it will be quick."
Macquarie Office Trust chief executive Simon Jones said the recovery would depend on how quickly improved tenant inquiry converted into deals, although he pointed to a sea change in the market.
"It's interesting to note last year was a turning point in the sector," Mr Jones said.
"It was a year of tenant expansion and growth. Tenants aren't kicking tyres any more, they're actually doing deals."
The real surprise out of yesterday's PCA numbers was the performance of Sydney and Melbourne during the past six months.
While the national vacancy rate dropped back by 0.4 per cent to 9.4 per cent buoyed by the strongest net absorption figures in four years it was Melbourne that led the pack, not Sydney.
While most analysts had expected the Sydney CBD vacancy to improve it instead rose from 10.3 per cent to a seven-year high of 11.2 per cent.
Even though tenant demand picked up in Sydney, it was not enough to offset the new supply coming on stream in projects such as Latitude at World Square.
Sydney was in fact the only CBD market where vacancies rose, giving the city the second highest percentage of vacant offices in the country behind Perth.
At the same time, Melbourne defied the doomsayers, although it appeared to be a short-term reprieve given the amount of new office supply to come on stream.
The Melbourne CBD vacancy dropped from 10.2 per cent to 9.8 per cent underpinned by strong tenant demand. Indeed, the Melbourne CBD recorded by far the strongest net absorption of space in the country in the December half, its highest rate in 18 years and double that of Sydney.
But with a raft of new office towers under construction, Mr Jones warned against being overly optimistic. "I don't think we'll be sitting here with such a rosy outlook on Melbourne next year," he said.
That said, Melbourne was yesterday enjoying its day in the sun. The PCA ranked Melbourne, Brisbane and Canberra as the big winners during the past six and 12 months, after all three cities recorded strong net absorption.
The big losers were Australia's suburban markets. This was despite persistent talk that tenants might increasingly consider decentralising their operations.
While all of the CBD markets posted positive net absorption numbers in the December half, the figures were negative for more than half of the suburban markets surveyed by the PCA.
North Sydney and Chatswood were ranked as the biggest losers, with the situation most dire in North Sydney, where net absorption was negative by 21,922 square metres.
The other trend highlighted in yesterday's figures was a flight to quality by office tenants, who have taken the opportunity to cash in on cheaper rentals and upgrade their accommodation.
__________________________________
City still waiting for recovery
Kathryn House
10 February 2005
Sydney NATIONAL OFFICE VACANCIES
SYDNEY CBD Snapshot Jan 05
Vacancy rate 11.2%
Total stock 4,574,366 sqm
6 mth net absorption 37,559 sqm
What happened to the Sydney CBD? With tenant demand picking up and office leasing improving, most analysts were forecasting a long-awaited turnaround in the city office market. However, yesterday's Property Council of Australia's figures show the market recovery is yet to kick in, with new supply still outweighing net absorption.
Overall the outlook seems positive. The PCA's NSW executive director, Ken Morrison, said there were encouraging signs that demand for office space had "turned the corner".
However, it may take until later this year for that pick-up to translate into lower vacancies and fewer tenant incentives in the CBD.
According to the PCA, the total city vacancy is now 11.2 per cent, the highest level in seven years and up from 10.3 per cent in July.
On the flip side, net absorption was positive for the first time in three years, with 37,559 square metres of space absorbed in the past six months and much less sub-lease space in the market.
The dampener was new supply, with 112,926 sq m of space added to the market more than half of that in the new Ernst & Young Centre at World Square.
With only moderate amounts of new space still to come on stream, most analysts are confident about the outlook for Sydney, although there is some debate about the likely speed of the recovery.
Knight Frank research manager Michael Kingcott expects the upturn to be quickest in premium and A-grade space, as tenants upgrade to better-quality accommodation.
However, he warned yesterday that leasing conditions would stay "competitive" this year.
Savills national leasing director Rob Dickins is tipping face rents to remain relatively flat until tenant incentives drop below 15 per cent from the present average of between 20 per cent and 25 per cent.
He is confident of that happening by early next year as options for tenants become more limited, particularly for users wanting more than 4000 sq m of space.
"We're cautiously optimistic and positive about the way the year is going to unfold," Mr Dickins said.
Macquarie Office Trust chief executive Simon Jones said there was already anecdotal evidence that landlords were saying no to some of the incentives requested by tenants.
"That's where you see the balance starting to shift," Mr Jones said.
At yesterday's PCA breakfast, he jokingly compared leasing conditions in the past three years to a "marathon sale".
"The good product left the shelves and last year's discounts won't last the full 12 months," Mr Jones said.
One positive for the market will be stronger white-collar employment, according to Jones Lang LaSalle, which issued its own set of office market statistics yesterday.
JLL uses different methodology to the PCA and includes leasing intentions in its data. Its numbers were more positive for Sydney, showing 42,000 sq m of net absorption in the December quarter the highest in the country and the strongest result for Sydney in four years.
That translated to 53,000 sq m of net absorption for the December half, but even JLL had the CBD's vacancy rising, from 11.9 per cent to 12 per cent. JLL research director Jane Murray said white-collar employment had fallen slightly in 2004 but was expected to at least keep pace with gross domestic product growth this year.
____________________________________
Fancy footwork leaves landlords smiling
Karina Barrymore
10 February 2005
Melbourne NATIONAL OFFICE VACANCIES
MELBOURNE CBD Snapshot Jan 05
Vacancy rate 9.8%
Total stock 3,363,282 sqm
6 mth net absorption 76,611 sqm
Melbourne CBD landlords learned a new dance step, the hot shoe shuffle, as they scrambled during the past few months to sign up tenants and avoid the widely tipped rise in vacancy rates.
The quick action has paid dividends. The Melbourne CBD vacancy rate has fallen from 10.2 per cent to 9.8 per cent during the past six months.
Melbourne was just one of only a handful of office markets around the country to record a drop in vacant office space, according to the latest Property Council of Australia surveys.
However, it's not all positive for the Melbourne market, with the latest statistics somewhat of a smoke and mirrors result.
The inclusion of the Docklands precinct in the CBD survey has painted the city in a much brighter light. Construction delays, notorious in the Victorian market, have also aided the latest vacancy results.
After stripping out the Docklands from the latest survey, there has been no improvement in Melbourne vacancies, although most commentators said this was still positive because they were expecting vacancy levels to rise.
Based on the original CBD boundaries, the latest PCA survey produced a vacancy rate unchanged from six months ago of 10.2 per cent.
According to Knight Frank research manager Glenn Lampard, the net absorption figures for the Melbourne survey reflected the large take up of space in the Docklands, not the CBD. "The inclusion of the Docklands precinct has skewed the figures a little," he said.
And according to Charter Keck Cramer director Rob Papaleo, the delay in construction of many of Melbourne's new high-rise office buildings also aided the strong vacancy result.
Mr Papaleo said that several major office towers, including Australand's Freshwater Place and 11 Exhibition Street, were behind construction schedule.
This had already been factored into the hefty vacancy forecasts of two years ago which predicted empty office space to reach up to 15 per cent in the next two years.
Both commentators agreed that the construction delays had benefitted the rates in the latest survey but said it only temporarily deferred some of the vacancies.
Property Council of Victoria executive director Jennifer Cunich welcomed the fall in the headline rate and was also optimistic about the amount of new supply about to enter the market. "While future supply in the CBD appears hefty, with over 260,000 sq m to come on line in the next two years, the majority is pre-committed; about 70 per cent in 2005 and a further 54 per cent in 2006," she said.
The biggest improvement in the latest survey was recorded in A-grade office stock, with vacancies in these buildings falling from 10.3 per cent in July last year to just 7.9 per cent at January 31, 2005.
The worst performers were Melbourne's B-grade office properties, with vacancies jumping from 9.2 per cent to 11.1 per cent.
The PCA survey also found high-profile landmark towers, known as premium office buildings, also fared well in the shoe shuffle, with vacancies falling from 6.4 per cent to just 4.9 per cent during the past six months.
Melbourne's St Kilda Road precinct was a strong performer, with vacancies falling from 13.2 per cent to 10.9 per cent as businesses relocated to the precinct and existing corporations increased their space under lease.
Southbank also saw a fall in empty space from 8.8 per cent to 8.4 per cent during the past six months.