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News release

Leasing enquiry figures remain at relatively solid levels

Strong demand from resource and resource-related tenants in Perth and Brisbane is reflected by a sharp increase in leasing enquiry figures over the past 12 months

AUSTRALIA, 28 NOVEMBER 2011 – The Jones Lang LaSalle analysis of leasing enquiry levels market-by-market was conducted in November. The same data was collected in 2008, 2009 and 2010.
The study found that aggregated leasing enquiries in the CBD markets of Sydney, Melbourne, Brisbane and Perth are 17% higher in 4Q11 than a year earlier. Leasing enquires are now 60% higher than the trough recorded in early 4Q09.
Jones Lang LaSalle’s Director of Office Market Research, Andrew Ballantyne said, “At a headline level, the demand for office space has remained relatively firm despite the volatility in financial markets and heightened risks associated with European sovereign debt issues.”
“Positive net absorption of 256,100 sqm was recorded in the 12 months to September-2011. Moving forward, the continued growth in leasing enquiries in the year to November-2011 and a number of expansionary moves into new developments supports a net absorption figure above the long-term average of 245,000 sqm in 2012,” said Mr Ballantyne.
Australian Head of Leasing for Jones Lang LaSalle, Kevin George said, “It is encouraging that a number of tenants are shrugging off the macro concerns and looking to make long-term strategic real estate decisions.”
“However, the lease negotiation process - especially for companies with headquarters in Europe and the US, remains elongated. There are also a number of tenants reviewing options to assist in the renewal process with their existing landlords,” said Mr George.
The resource-dependent markets of Perth and Brisbane recorded the strongest growth in leasing enquiry figures.
In Perth, Jones Lang LaSalle has recorded a 58% increase leasing enquiries over the past 12 months.
Mr George said, “There are a record number of resource projects committed in WA, with forecast capital expenditure totalling more than $200 billion. Over the past 12 months, major tenant moves by mining groups have accounted for 48% of the 60,700 sqm of net absorption recorded in the Perth CBD. If engineering and construction firms that operate in the resource sector are included into the equation, the figure increases to more than 82% of the net absorption in the Perth CBD.”
“The main hurdle tenants’ face in Perth is the ability to source suitable accommodation. The vacancy rate in the Perth CBD is 3.2%, whilst West Perth is just as tight at 3.3%,” said Mr George.
Tenant demand continues to gather momentum in Brisbane. Net absorption was 69,800 sqm over the past year, while leasing enquiry has continued to increase, up by 7.4% in the 12 months to November-2011.
“Increased leasing enquiry is largely attributed to tenants from the resource and resource-related sector. Prime-grade vacancy has fallen from a cyclical peak of 8.9% at 4Q09 to 3.7% at 3Q11. There are limited options for prime contiguous space and a number of tenants are considering pre-commitment options.
In Sydney, Jones Leasing LaSalle recorded a 3.2% increase in leasing enquiries in the year to November-2011. Whilst the leasing environment remains challenging, leasing enquiries are now 64% higher than the cyclical low recorded at 4Q09.
Mr George said “The level of leasing enquiry we have recorded in the Sydney CBD would normally translate into strong activity levels in 2012. However, we continue to monitor volatility in financial markets as there is a relationship between the equity markets and the demand for space in the Sydney CBD. At present, conservatism by some tenants is counter-balanced by others who look towards the opportunity presented by the Asia-Pacific region for growth.”
Melbourne was the only monitored CBD office market where leasing enquiry figures declined. In November-2011, leasing enquiry was down 7.7% from a year earlier.
“Last survey, the active pre-commitment requirements from Marsh Mercer, BHP Billiton and Aurecon were included in the leasing enquiry figures. However, these requirements were satisfied over the past 12 months, which partly explains the lower headline leasing enquiry figures.”
The Australian CBD office markets are bifurcating into the resource-dependent markets where tenants are expanding aggressively and the financial centres of Sydney and Melbourne where businesses are concerned about their short to medium-term revenue outlook. As a result, they are reviewing their cost base to protect margin.
 “A tenant can relocate to higher priced good quality prime-grade space, but make savings on the overall occupancy costs by taking less space and using it more efficiently. We continue to see strong demand for buildings with large efficient floor plates,” concluded Mr George.