Focus on white-collar blues
The focus on the office sector by Mirvac and Dexus Property and GPT Group, reported by chief executives in the past week, will boost the sector, which remains under pressure because of flat rental growth.
The emphasis on offices comes amid volatile white-collar employment data. According to the Australian Bureau of Statistic, jobs rose by 50,100 in April after falling by 31,200 in March.
Economists say the jobs market is in good shape, but probably not great. According to the analysts at JP Morgan, Australian real estate investment trusts own $20 billion worth of offices, and these comprise 25 per cent of the sector's domestic trust assets.
They warn that weak business confidence across all markets is resulting in sustained weak absorption (leasing), and driving direct and sublease vacancies higher.
"We expect effective rents to fall across all markets as increasing vacancy and overly ambitious supply pipelines drive aggressive leasing tactics, including incentive increases," the analysts said.
"We forecast negative 3 per cent rent growth this year and positive 2 per cent growth over 2014-15."
The analysts said there was the prospect of the national office market moving to a 10 per cent vacancy rate. Present average prime and secondary vacancy rates across the six major markets are 8 per cent and 12 per cent respectively.
"We see plausible scenarios where total vacancy in Sydney, Melbourne, Brisbane and Canberra could remain 10 per cent over the medium term, albeit with prime conditions substantially stronger than secondary," the analysts said.
The NSW head of research at Savills, Simon Hemphill, said the number of prime full floors available at present had spiked over recent months and there were 270 floors (including future development and existing refurbishments) now available, the highest figure since June 2010.
"This number, although somewhat higher than the long-term average, also indicates there is only a handful of contiguous space available in Sydney over 10,000 square metres, including Grosvenor Place, 19 Martin Place and No. 1 Martin Place," he said.
"Large tenants either contracting within their own tenancies or moving back-office functions out of the CBD have led to the number of prime full floors currently available increasing from the 257 reported in February to 270 in March."
Mr Hemphill said the overall vacancy rate in the Sydney city centre was at its lowest in four years, according to the latest numbers from the Property Council of Australia. "Overall vacancy has fallen to 7.2 per cent, down from 8.1 per cent six months earlier," he said. "However, Savills is of the view there is more sublease space available than that being reported, and therefore we estimate the current vacancy rate sits a little higher, at 7.8 per cent."
The national head of office leasing at Savills, Rob Dickins, said the level of activity was healthy, but there appeared to be a hiatus in the number of transactions being concluded in the first quarter of 2013.