As you would expect, the financial turmoil worldwide has had a significant effect on most property markets. However, the effect has not been the same across the board.
The current state of the various CBD office markets is probably your best barometer of future activity for two reasons. First, the Property Council of Australia (PCA) conducts six-monthly surveys to establish the CBD vacancy rates right around Australia.
Second, the CBD office market is probably the largest by value (and visibility); therefore, it tends to have a ripple effect out into the suburbs. And the office market can also impact upon both the industrial and retail sectors
The PCA report shows that the office vacancy rate in Brisbane has more than doubled in the past six months, due to the contraction in the resource sector. The vacancy rate in the CBD has increased dramatically from 4.2% in January to 10.7% in July — well above the national average of 7.3%.
Slow growth overseas, as well as domestically, will continue to constrain Queensland business activities. As such, the excessive level of CBD rents has eased; and incentives currently sits at more than 25%, for long-term leases. Furthermore, the Gold Coast vacancy rate has blown out to around 20%.
Being the headquarters of so many financial corporations, demand for space has dropped considerably with all the lay-offs. As such, the vacancy rate has increased from 5.4% to 7.7% during the last six months — mainly due to the growing amount of sublease space available.
And rents are expected to decline further in 2009, accompanied with an expected surge in incentives.
Ever since its peak in late 2007 after the change of government, tenant demand has fallen away significantly. And this is caused the vacancy rate to rise from 7% to 9.2% — its highest level in more than 10 years.
Unlike Sydney (with its exposure to the finance sector) and Perth and Brisbane (being exposed to the resources sector) … the Melbourne CBD seems to have weathered the global financial storm far better. And currently, its vacancy rate sits at just 4.8% — well below the national average.
And CBD rentals appear to have stabilised, after having fallen only about 10%.
The Adelaide CBD can boast on the lowest vacancy rates, currently sitting at 5.5% — up from 3.4% in January this year. Rent levels should remain fairly static; and relatively unaffected by any sublease activity.
Tenant demand appears reasonably strong and should ensure a good leasing market.
Since mid-last year, Perth's record low CBD vacancy rate of 0.3% has now rocketed to 8%; and prime rents have fallen about 24% during the past 12 months.
Clearly Perth has been affected by the weakening global demand for commodities; and its vacancy rate is likely to exceed 10% during next year.