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News release


A positive sign for the resource markets as vacancy tightens in Q3

Sentiment rebounded strongly across most office markets in Q3 with strong levels of enquiry and activity in Perth and Brisbane

SYDNEY, 13 OCTOBER 2010 – September quarter statistics released by Jones Lang LaSalle Research revealed that the demand for office space continues to surprise on the upside for this stage of the recovery phase.
Positive net absorption of 94,700 sqm was recorded in the quarter and 432,000 sqm over the last 12 months. Furthermore, the national CBD office market vacancy rate remained at 8.3% in Q3.
Jones Lang LaSalle’s Director of Office Market Research, Andrew Ballantyne said “The office market recovery continues to gain momentum. Business confidence was up sharply in Q3 as global equity markets rebounded and fears of a double dip recession in the US receded.”
Most CBD office markets recorded positive net absorption in the quarter. Sydney (27,600 sqm) and Melbourne (22,900 sqm) both recorded strong net absorption over the quarter. However, as a percentage of total stock, the net absorption recorded in Brisbane (24,800 sqm) and Perth (20,200 sqm) was stronger than the financial centres.
The Adelaide net absorption figure (4,300 sqm) was firm considering the limited availability of prime contiguous space. Canberra (-5,100 sqm) was the only market to record negative net absorption as the Federal Election slowed leasing activity in Q3.
Mr Ballantyne said “From a demand perspective, Perth was a standout performer in Q3. The agreement between the government and large resource companies has removed the uncertainty surrounding the mining tax. Chevron and BHP Billiton took additional space in Q3 and the recent jump in the share price of mid-cap mining firms is a positive for office demand from mining and mining related sectors.
“The Reserve Bank of Australia’s Governor, Glenn Stevens, recently stated that Australia is entering the biggest mining and energy boom since the 19th Century – this will clearly have positive implications for the Perth market,” said Mr Ballantyne.
As a result of the strong net absorption figure, vacancy in the Perth CBD fell by 0.5 percentage points to 7.9%.
The decline in the Perth vacancy rate was replicated in Brisbane. Total market vacancy in the Brisbane CBD declined by 1.3 percentage points to 9.3%.
Mr Ballantyne said “There were good levels of activity from public sector tenants in the Brisbane CBD. The commitment to new leases from mining firms has yet to occur in Brisbane, but our recent analysis of leasing enquiries shows that enquiry from resource firms is rising and we expect to see stronger activity from this sector in 2011.”
Jones Lang LaSalle’s National Head of Leasing, Kevin George said, “There were a number of positive indicators recorded in the Sydney CBD in Q3. Macquarie took an additional 6,600 sqm of expansion space at 1 Martin Place and sub-lease availability declined to 1.2% of total stock or 58,000 sqm.
“The current rate of sub-lease vacancy is the lowest sub-lease figure we have recorded since early 2008, and a sign that sub-lease vacancy is no longer a story in the Sydney CBD office market,” said Mr George.
Despite the strong net absorption figure, vacancy increased in the Sydney CBD to 8.1% in Q3.
Mr George said “Importantly, for the institutions that hold the bulk of the prime grade office towers in the Sydney CBD, two-thirds of the rise in vacancy was recorded in secondary grade buildings.”
“Prime gross effective rents have been flat over the past 18 months in the Sydney CBD. There is unlikely to be rental tension in the Sydney market until prime grade vacancy comes back below 7.5%. We expect that this will occur in mid 2011,” said Mr George.
Vacancy in the Melbourne CBD increased to 6.6% in Q3. However, tenant demand for prime space remained robust and the prime grade vacancy rate tightened to 4.3%, whilst secondary grade moved out to 9.7%. 
Mr George said, “Access Economics estimate that Melbourne CBD white collar employment in the Finance & Insurance sector will increase by 7.2% in 2010. The expansion of the retail banks has been a big driver for the Melbourne office market and, in Q3, NAB committed to 7,200 sqm of sub-lease space at QV.
“The growth in Melbourne rents continued in Q3. Prime gross effective rents increased by 1.2% in the quarter and are now up 8.2% in 2010,” said Mr George.
The rate of rental decline continues to slow in the Brisbane CBD (-2.7%) and Perth CBD (-0.5%). Both these markets are now expected to reach a trough in late 2010 or early 2011. Prime gross effective were unchanged in Canberra, while Adelaide recorded an increase of 1.8% in Q3.
Mr George said, “Adelaide has been the quiet achiever of the CBD office markets. Vacancy has fallen to 7.6% in Q3 from the cyclical peak in late 2009 (8.2%) and prime gross effective rents have increased by 5.0% in 2010.”
Mr George said “There is currently 648,000 sqm of space under construction and scheduled to complete in 2011 and 2012 across CBD office markets. In late 2007, we forecast that completions would be 930,000 sqm. The 30% difference between the two numbers is the legacy of the Global Financial Crisis.
“Vacancy is low in most CBD office markets for this stage of the recovery. Demand continues to surprise on the upside and with limited supply coming online in 2011 and 2012, a number of markets will be pushing up against supply-side constraints in the next 12 to 18 months,” concluded Mr George.