International trend of robust investment activity and subdued leasing pronounced in Australia: JLL
Australia's real estate market remained a tale of two stories in the third quarter of this year.
In its latest Global Market Perspective fourth quarter report, Jones Lang LaSalle found that during the September quarter, the theme of robust investment activity and subdued leasing activity not only continued globally but was more pronounce in the Australian market.
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Unlike the US and London which are experiencing both strong leasing and investment markets, it highlighted that in Paris and the Australian cities, the very strong demand from domestic and cross-border investors were in stark contrast to weak market fundamentals.
But JLL also noted that with the outlook improving in the majority of major leasing markets, it expects "in general, that disconnects will narrow during 2014".
The domestic findings were part of broader global real estate market report which overall pointed to more encouraging signs in 2014.
"Virtually all major markets are recording sales volume growth - and the weight of money, combined with an improving lending environment and heightened risk appetite, point to further uplift over the coming year," the report said.
"Liquidity is improving across a broad spectrum of markets and sectors and, barring external shocks, we are looking at a scenario where 2014 global sales volumes are potentially only 20-25% lower than the boom years of 2006 / 2007.”
However, it cautioned that the global leasing markets are less exuberant, with corporates remaining vigilant.
It also pointed out that following such a period of weak corporate activity, demand would typically be expected to bounce back by 20-30% - but that this cycle was likely to be different. "Commercial real estate is now being utilised more efficiently, leading us to the view that the upswing in occupier demand is likely to be less pronounced than in previous cycles, JLL said. “Even so, the majority of major leasing markets should be on a more solid footing in 2014".
Commenting on the local results, JLL head of international investments for Australia, Simon Storry said that strong institutional demand, both domestic and offshore, continued to support core valuations and noted that yield spreads, both within and between markets, widened again in the third quarter.
"These very wide spreads are now attracting yield-hungry investors - frequently active asset managers, smaller funds and syndicates - with more flexible mandates," he said.
In office markets, the average CBD vacancy rose from 10.9% (Q2) to 11.3% (Q3). He attributed that spike in vacancy rates to an increase in stock, however, he also pointed out that net absorption across CBD markets posted the first positive reading since 2012.
"Sub-lease availability (a sensitive indicator of underlying demand for office space) also fell slightly in Sydney and Melbourne although Brisbane and Perth both reported increases," said Mr Storry.
On the basis of information on future transactions, as well as long term indicators such as residential construction, Mr Storry said "we see the September quarter as marking the stabilisation of office space demand". But he expected vacancy rates to remain elevated through 2014.
"The medium term outlook for office markets, as for retail and industrial sectors, is for a measured recovery, with rental growth strengthening,” he concluded.