Sector bullish despite rise in vacancies
National office vacancies have breached the double-digit barrier to hit 11.3 per cent - levels not seen for more than 14 years.
But despite the underlying weak leasing market, demand remains high for premium office towers, which provide solid capital growth for landlords.
In investment markets, Jones Lang LaSalle has recorded $2.4 billion of office transactions (above $5 million) in the September quarter and $11 billion for the past year.
Jones Lang LaSalle's head of capital market research, Andrew Ballantyne, said the high level of transaction volumes illustrated the strong demand for core real estate. "The most active buyers are domestic wholesale funds and offshore investors," he said.
Boosted by the investment deals, sentiment in the real estate market is riding high with the Property Council/ANZ Property Industry Confidence Survey showing the NSW confidence index sitting at 142 for the December quarter (100 is considered neutral).
The head of property research at ANZ, Paul Braddick, said NSW and Victoria were the only states to report positive capital growth expectations.
Morningstar analyst Tony Sherlock said the property sector was in a state of ﬂux, with economic drivers providing mixed messages.
"Headwinds arise from the soft economy, tailwinds arise from low interest rates, and crosswinds arise from currency volatility and an increased risk of asset bubbles and inﬂation," he said.
But while business is confident, leasing vacancy levels are rising, according to Jones Lang LaSalle research for the third quarter. Jones Lang LaSalle's head of office leasing, Tim O'Connor, said five of the six CBD office markets had recorded double-digit vacancy rates.
Brisbane (14.5 per cent), Adelaide (13.1 per cent), Sydney (10.7 per cent) and Melbourne (10.5 per cent) increased over the quarter, while Canberra recorded a moderate reduction in vacancies to 11.4 per cent.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free