Office vacancy rates shift higher

The national office vacancy rate has risen to double digits at a time when investment sentiment has polarised, with Sydney positive and Melbourne going backwards.

According to the Property Council of Australia-ANZ Property Industry Confidence Survey, for the year to June 30 the NSW confidence index sits at 130. Looking out a further three month for the September quarter, it is at 131 points. The total index score for Australia was 117 for the June quarter. A score of 100 is considered neutral.

The survey polled more than 2700 professionals from the property and construction sectors in all states and territories, including 792 from NSW and 672 from Victoria, for their forward-looking views. However, the Victorian respondents' sentiment shrank from 117 on the index for the June quarter to 114 for the upcoming September quarter.

The NSW executive director of the Property Council, Glenn Byres said the property industry has seen a dramatic shift in sentiment over the past 12 months and is maintaining its faith about the prospects ahead. "The index has jumped 24 points in the past 12 months, the biggest lift across any jurisdiction," he said.

The Victorian executive director of the Property Council, Jennifer Cunich, said while overall industry sentiment has remained positive, "capital value expectations have shifted decidedly negative". "Twenty-eight and 20 per cent of respondents expect capital values for shopping centres and commercial offices to decrease over the next 12 months respectively," Ms Cunich said.

The mixed outlooks are set against the latest office market report from Jones Lang LaSalle, which showed a rise in the national CBD office market vacancy rate to 10.9 per cent. The report says the vacancy rate is now at the highest since June 1999, when it hit 11.1 per cent. That was based on a net absorption [net leasing] rate of a negative 191,900 square metres for the 12 months ending June 30 - that is, less demand than supply.

In contrast, in the midst of the global financial crisis in 2008-09, net absorption was a negative 117,800 square metres.

The head of capital market research at Jones Lang LaSalle, Andrew Ballantyne, said that looking at the data, there was no precedent for what has occurred in Australian office markets. "Investment activity remains robust, while the 2012-13 financial year can be best described as an annus horribilis for the physical markets."

According to JLL, five of the six CBD office markets are recording double digit vacancy rates, with Sydney at 10.2 per cent and Melbourne at 10 per cent. Brisbane, Adelaide and Canberra are also at more than 11 per cent, while Perth is at 7.9 per cent.

"Corporate Australia is adjusting to a lower growth outlook over the short-term and rationalising their cost base in order to protect and maintain margins. As a result, sub-lease availability has increased over the 2012-13 financial year," Mr Ballantyne said. The Property Council of Australia releases its vacancy data next week.