Office vacancy rates on the rise
For Australia, the main office sectors have all recorded rising vacancy levels, as white collar employment is under pressure and concern about oversupply in some cities sees rental levels flatten out.
According to the Property Council of Australia's office market report for the six months to June 30, the national vacancy rate was sitting at 10.1 per cent, with Sydney at 8.9 per cent and Melbourne at 9.8 per cent.
The vacancy rates are all higher than six months ago and at present levels are said to be the highest for at least a decade.
In results released on Monday for GPT Group, its head of investment management, Carmel Hourigan, said while it had extended its weighted average leasing expiries, employment growth remained weak across most office markets.
"Despite this weakness, forecasters are expecting an improvement in growth in financial year 2014, although below historical averages," Ms Hourigan said.
"Each market has a different employment base and, as such, are expected to experience varying levels of demand.
"For Sydney, we expect continued weakness for the remainder of this calendar year ... at a slower rate of decline.
"Melbourne entered the downturn much earlier than other markets and as a result has experienced a mild recovery in white collar employment growth in 2013. Its diversified employment base will assist in a mild recovery over the next 12 months."
Commercial real estate firm CBRE said in its latest report that the value of global office properties continued to rise in the second quarter while global office rents held steady.
During the quarter, CBRE's Global Office Capital Value Index rose 1 per cent and its Global Office Rent Index rose 0.2 per cent.
Raymond Torto, CBRE's global chairman of research, said commercial real estate continued to hold strong appeal for investors in a low interest rate environment.
"Despite the recent uptick in long-term interest rates, prime assets, in particular, offer attractive risk-adjusted returns compared with stocks and bonds," he said.
"Meanwhile, the slow pace of the global economic recovery continues to inhibit rent growth. However, rents continue to remain broadly stable, as limited new construction in most parts of the world keeps available supply in check."
In the Asia-Pacific region, while capital values grew just 0.8 per cent in the second quarter of this year, this remained the only region whose capital value index has fully rebounded from the financial crisis, and now stands 5.3 per cent above its pre-crisis peak in the second quarter of 2008.
"The Asia-Pacific Office Rent Index moderated further, inching up by 0.1 per cent in the second quarter of 2013, reflecting muted demand across much of the region. Asia-Pacific occupiers remain cost-conscious and guarded about making long-term occupancy decisions," Dr Torto said.
Frequently Asked Questions about this Article…
According to the Property Council of Australia report for the six months to June 30, the national office vacancy rate was 10.1%. Sydney sat at 8.9% and Melbourne at 9.8%. All of these rates are higher than six months earlier and are said to be the highest in at least a decade.
The article links rising vacancy rates to weak white‑collar employment and concerns about oversupply in some cities. Those factors are putting pressure on demand for office space, which in turn is flattening rental levels in parts of Australia.
CBRE reported that in the second quarter the Global Office Capital Value Index rose 1% while the Global Office Rent Index rose 0.2%. That indicates capital values climbed modestly and rents remained broadly steady during the quarter.
GPT Group’s head of investment management, Carmel Hourigan, said the group had extended its weighted average leasing expiries but noted employment growth remained weak across most office markets. Forecasts expect some improvement in fiscal 2014, though still below historical averages, and different markets are expected to see varying demand levels.
Yes. CBRE noted Asia‑Pacific capital values grew 0.8% in the second quarter and that the region’s capital value index has fully rebounded from the financial crisis, standing 5.3% above its pre‑crisis peak in Q2 2008. However, rent growth in the region was muted, with the Asia‑Pacific Office Rent Index up just 0.1% in the quarter.
CBRE’s global chairman of research, Raymond Torto, said commercial real estate continues to hold strong appeal for investors in a low interest rate environment. He noted that prime assets, in particular, offer attractive risk‑adjusted returns compared with stocks and bonds, even as long‑term interest rates have ticked up.
Rising vacancy and weak white‑collar employment can put downward pressure on rents and occupancy, which may limit near‑term income growth from office property investments. At the same time, limited new construction in many markets is helping keep available supply in check, and prime assets are still viewed as offering relatively attractive returns versus stocks and bonds. Investors should watch vacancy trends, local employment conditions and supply dynamics.
GPT Group commentary in the article says Sydney is expected to see continued weakness for the remainder of the calendar year, though at a slower rate of decline. Melbourne, having entered the downturn earlier, has seen a mild recovery in white‑collar employment in 2013 and its diversified employment base is expected to support a mild recovery over the next 12 months.
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