Falling availability of office space delivering growth
The Australian Real Estate Quarterly Review Q4 2017 focuses on the growth cycle being experienced by office markets.
The outlook for office markets is positive all along the eastern seaboard.
In the past year, the level of available office space has declined in Sydney CBD, North Sydney, Parramatta, Melbourne and Brisbane.
Office markets are benefiting from strong levels of service sector employment, positive business conditions, and in the short term, a lack of new supply.
Over 315,000 full time jobs were created in Australia last year, the highest rate of growth in ten years.
The short term outlook for the Sydney and Melbourne CBDs remains strong as vacancy rates fall further below average at 6.0% and 6.9% respectively.
Face rents in Sydney and Melbourne have risen by more than 10% over the past year, and we expect further growth in the year ahead.
The recovery in Brisbane is expected to strengthen, with the prime vacancy rate having fallen to less than 12%.
The Perth office market has bottomed. Demand has turned positive after four years of contraction, and prime vacancy has fallen from 24.5% to 18.2%.
Higher rents will encourage construction of new office buildings, which in time should constrain rental increases. However, the potential new supply is some years away.
Investors in office buildings are being rewarded by the broad strategic themes of growth in the service sector, combined with population growth and infrastructure investment on the eastern seaboard of Australia.