Australia's leasing market is on the cusp of a revival: CBRE

Australia's leasing market is on the cusp of a revival. The upbeat assessment was revealed in CBRE’s National Office Marketview report, which says that improvements in the consumer, housing and export sectors is expected to remove some pressure from tenants’ business top-line performance from late 2014.

It's those favourable economic conditions in the second half of 2014 that it believes should provide the basis for the return of tenant demand.

But CBRE cautions that due to a strong supply pipeline, market vacancies will likely rise over the next two to three years.

CBRE’s associate director of research and co-author of the report, Claire Cupitt, said that it was widely recognised that 2013 was a historical low point for tenant demand across Australia, with the eastern seaboard markets the most over-exposed.

“In an attempt to preserve valuations, net face rents were largely sustained."

"However, soft leasing activity, higher vacancy and record levels of sub-lease space on the market saw incentives rise across the board and effective rents fall,” she said.

CBRE believes that the key to improved occupier markets will be a "growing employment base", which it expects to be concentrated in the second half of 2014.

"Directionally, we are about to turn the corner, but the improvement will be slow," Cupitt said.

What remains the most concerning aspect for the office market for CBRE is the strong supply in the CBD markets. Supply is forecast to outweigh demand over the next three, which despite the improving demand, it said would still have a pronounced effect in Melbourne and Perth, followed by Sydney and Brisbane.

“Given the supply/demand imbalance, our assessment of effective rents remains to the downside with further increases in incentives offered in order to support face rents on the eastern seaboard", said Cupitt.

In contrast, the report is forecasting Perth CBD incentives to peak above 27% in 2015.