Falling vacancies make offices a good commercial investment

The commercial property market is driven mainly by supply and demand, especially offices.

And therefore, with falling vacancies, positive net absorption and few new projects in the pipeline, this means a looming shortage of office space around Australia — with rentals poised to rise sharply.

A recent study by Savills shows a 22% decline in available full floors nationally — currently sitting at 591 floors in September this year.

With the surge in the mining sector, Perth had a 50% fall to 65 available prime floors over the past two years.

And in Brisbane the number of prime floors available has declined 32% (to 99 floors) over the past 15 months, as its mining sector also regains momentum.

The Melbourne office vacancy rate has remained consistently low (currently at around 5.3%) due to a more even balance in its tenancy mix. Plus, most of the new Docklands projects proceeded with significant pre-commitments.

As such, it has mainly been back-fill space (left by relocating tenants) that has provided the 56 vacant floors within the Melbourne CBD.

Sydney also enjoyed a decline of over 20% in full floors. However, it still has about 260 prime floors available —just under half of the total number of floors available nationally.

Bottom Line: With the lack of any major new construction until around 2013-14, vacancy rates will continue to fall. In turn, this will cause sharp increases in both rentals and capital growth — making commercial property a great performer over the next five years.