Perth and Brisbane CBD office markets to get mining sector boost in 2012
Last year was a great year for office building owners in the Perth CBD. Net effective rents for A-grade properties jumped by 24% over the 12 months to mid-year and the vacancy rate started to decline dramatically, estimated to be less than 4% by the third quarter of 2011.
The impact of the two-speed economy is now particularly apparent in this market. Next year, demand is expected to continue to accelerate, however, there are a number of new developments that will help to moderate rental growth and absorb tenants.
A move to decentralise hovernment tenants to non-CBD locations will also assist in accommodating demand.
The Brisbane CBD is also experiencing significant demand, however the floods at the start of the year, as well as a significant pipeline of development have led to relatively flat rental levels. Next year, there will be two buildings completing, One One One Eagle Street and King George Central. Similarly to Perth CBD, these will help to moderate rental growth, however net absorption levels are expected to be high, with rental growth really starting to accelerate towards the end of the year.
Although the Brisbane and Perth CBD office markets will be the obvious beneficiaries of growth in the mining sector, other CBDs are also expected to benefit. According to Deloitte Access Economics, Melbourne is a world leader in the provision of front and back office services to mining, while the Adelaide CBD is likely to benefit from the Olympic Dam expansion, with the first stage of this expected to complete by late 2013.
Australian office property has been the most popular investment category for overseas investors. The total volume of Australian office property acquired by offshore purchasers increased from $644 million in 2008 to $3 billion in 2011, a 365% increase. Asian and North American investors were the dominant purchasers.
Next year, these volumes are likely to continue provided there are enough owners willing to sell. Globally, there is still a lot of capital looking for a place to invest and Australian property is attractive due to Australia’s high levels of transparency and relatively solid performance.
Poor economic performance in Europe and the US is a positive for Australian property from this perspective. It is expected that similar to last year, Asian investors will be the main purchasers.
The likely sellers next year are the REITS, with some indicating that they plan to sell non-core assets. It is also possible that private investors will look to capitalise on the strong demand for their assets. The main competitors for Australian property will be the wholesale funds that are also looking to buy.
Nerida Conisbee is national director of office research at Colliers International
For more expert forecasts for the property market in 2012, download our free eBook.