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News release


Strong levels of demand evident across CBD office markets in 2010

Sydney net absorption was over 125,000 sqm, while Perth records its highest net absorption figure over Jones Lang LaSalle’s 40 year time series

SYDNEY, 19 JANUARY 2011 – December quarter statistics released by Jones Lang LaSalle Research revealed that the demand for office space is rising as companies move into a growth mode and increase head count.
Across CBD office markets, positive net absorption of 74,400 sqm was recorded in the quarter and 450,000 sqm in 2010. As a result, the national CBD office market vacancy rate tightened to 7.9% in Q4, from the cyclical peak recorded in Q3 (8.2%).
Jones Lang LaSalle’s Director of Office Market Research, Andrew Ballantyne said “The labour market is a lead indicator for the office sector. The strong gains recorded in the Australian labour market over the past 18 months have translated into above trend net absorption figures.”
“The strength in the labour market is reflected by the amount of space available for sub-lease. Throughout 2010, sub-lease availability across the national CBD office markets fell by 123,300 sqm and is now less than 1.0% of total stock,” said Mr Ballantyne.
In 2010, net absorption was above trend in all CBD office markets with the exception of Adelaide where net absorption was limited by a scarcity of contiguous space. Strong levels of business investment in the resource sector has fuelled the demand for space in Perth (103,600 sqm) and Brisbane (65,300 sqm).
Mr Ballantyne said “From a demand perspective, Perth continues to surprise on the upside. The net absorption figure recorded in 2010 (103,600 sqm) is the highest result Jones Lang LaSalle has recorded in 40 years of monitoring the Perth market.”
“The drivers of Perth continue to be the resource firms, with Chevron and Rio Tinto leasing additional space. Whilst the resource firms have been seeking additional space, the mining sector only accounts for 11% of white collar employment in Perth. The resource sector is the catalyst for office demand with strong take-up a precursor for increased demand from the mining-related service firms,” said Mr Ballantyne.
Vacancy fell to 7.1% in the Perth CBD in Q4 with the results mirrored in West Perth where vacancy has tightened to 5.1%.
“Rising demand and falling vacancy has resulted in the Perth rental market reaching the trough earlier than expected. Indeed, in the Perth CBD, prime gross effective rents increased by 2.5% in Q4.”
A resource-led recovery is occurring in Brisbane. Vacancy dropped by 1.0 percentage point in Q4 to 8.3% - the lowest level since early 2009.
Jones Lang LaSalle’s National Head of Leasing, Kevin George said, “The underlying demand for Queensland’s resources – coal and LNG, in particular, remains very positive. Whilst some projects will be delayed and certain infrastructure has been impacted by the recent floods, firms are likely to dedicate additional resources to getting projects back on-line, which will create additional demand for office space across the Brisbane markets.”
“The impact of the recent floods is likely to be higher demand for office space in the short term while construction plans are likely to be reviewed. This can be expected to flow through to higher rents and lower than expected vacancy over the next two to three years,” said Mr George.
Sydney recorded net absorption of 127,500 sqm – well above the 40 year average of 65,300 sqm.
Mr George said, “Despite the strong net absorption result, the Sydney market had a false start in early 2010. In the latter part of 2010, European sovereign debt issues unsettled the credit markets and created volatility in equity markets.
“Assuming there are no major financial shocks to the Australian economy, there is likely to be an increase in M&A activity, more IPOs and a rise in trading volumes in financial markets. All of these activities will boost financial services employment and the demand for office space in the Sydney CBD,” said Mr George.
Recent leasing activity at 420 George Street and 175 Pitt Street resulted in vacancy in the Sydney CBD tightening to 7.8% in Q4. There was a reduction in leasing incentives in line with falling vacancy and prime gross effective rents increased by 3.2% in Q4.
The Melbourne CBD recorded 84,000 sqm of net absorption in 2010 and vacancy tightened to 6.3% in Q4. Below equilibrium vacancy and strong tenant demand resulted in prime gross effective rents increasing by 0.8% in Q4 and 9.1% in 2010.
Mr George said “There are very few options for large space users in existing stock in the Melbourne CBD. As a result, pre-commitment activity increased in 2010. There are further large requirements in the market that will be attracted to development stock in 2011.”
Canberra recorded 50,100 sqm of net absorption in 2010.
Mr George said “The uncertainty of an election year created inertia in the Canberra leasing market over the first nine months of 2010. However, the formation of a Labor-led coalition government has removed a measure of uncertainty resulting in an increase in the number of public sector requirements coming to the market. The recovery in leasing enquiry that was observed in Q4 will drive leasing activity in 2011.”
Completions across CBD office markets totalled 507,000 sqm in 2010 – this represented the peak year for supply in the current cycle. Developments (new and refurbishments) under construction and scheduled to complete in 2011 and 2012 total 380,000 sqm and 288,800 sqm.
“There is limited spare capacity across the national office markets for this stage of the cycle. Low levels of completions in 2011 and 2012 are the legacy of the GFC. With the Australian economy expected to record above trend growth in 2011 and 2012, the demand for office space will be strong and above trend rental growth is forecast for Sydney, Melbourne and Perth,” concluded Mr George.