10 Jun 2014 outlook for the commercial market
Office markets around Australia have been a tough pick over the past years, and 2014 may be no exception.
Sydney In 2013 supply remained constrained, leasing demand weak and buyer demand steady. For the 2014 outlook it is expected that the Sydney office market to continue through a cautious recovery with market rents, yields and capital value levels anticipated to further stabilise.
It is expected that higher quality office buildings in established suburban office markets such as Parramatta and North Ryde/Macquarie Park to show great potential for rental growth in 2014 as a result of lower than average vacancy levels and the affordability of good quality office space in these markets relative to the CBD and CBD fringe areas. Provided interest rates remain at low levels it is expected that private investors looking for higher yielding investments to continue to be attracted to commercial property in Sydney, whether it be through direct or indirect ownership. Institutional investors are also anticipated to continue to form a major portion of the buyer pool as they look to position their assets for the next upswing in leasing demand.
Melbourne Property investors are currently attracted to the core inner city and metropolitan office markets in locations including the Melbourne CBD, St Kilda Road and inner eastern suburbs such as Hawthorn, Richmond and South Yarra. Well established traditional core office locations will always attract buyers due to their central positioning and ease of access to public transport and amenities.
The Melbourne market is likely to experience stable or slightly increased prices in 2014 as demand for prime office space outweighs the stock available.
The impact of the potential new supply in expanded City Capital Zone (CCZ) may result in limited future office rental growth, depending on the pace of this new supply coming to market.
Since the announcement of rezoning of approx. 250 hectares of land known as Fishermans Bend which forms part of Port Melbourne, 21 skyscrapers have been proposed for Montague alone. It is expected that more commercial development proposals and approvals will continue in 2014.
Brisbane On a positive note for the Brisbane office market, investor activity remained strong through 2013. Looking forward some downward pressure on the rental market is expected, primarily due to the slowdown in tenant demand from the government and resources sectors. This trend is expected to continue throughout 2014. However it is believed the broader service sector will counteract the absence of high government and resources sector demand and improve to the demand trajectory.
There are a number of functionally obsolete buildings in the market that won’t survive the current cycle and lend themselves to being demolished or coverted to other uses which will boost investment demand in the short to medium term. This will be helped along by Queensland economic growth which is forecast to improve from the second half of this year, supported by strong population growth, improved consumer confidence and a sustained improvement in the services sector.
Acknowledgement: Herron Todd White Commercial, Month in Review, February 2014