Office property market gathers momentum

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The office leasing market has gathered momentum this year, with positive tenant demand in conjunction with an easing supply profile bringing the weighted average vacancy rate down to 11.4 per cent nationally in the March quarter.

According to the latest Charter Hall Sector Insights report, the vacancy rate was 7.5 per cent in Melbourne and 7.3 per cent in Sydney.

Signs of recovery are evident in Perth and Brisbane, with both recording falls in their vacancy rates.

Total office space net absorption across the major capitals totaled 327,600 square metres in the year to March, which is the highest level since March 2011, mainly driven by improving tenant demand in Melbourne.

Rentals in the office market grew by 24 per cent in Sydney and 13 per cent in Melbourne in 2016.

In the residential market, rents grew by 2.2 per cent in Sydney and 1.4 per cent in Melbourne over the same period.

Lease terms are significantly longer for commercial property than for residential.

The yield on prime CBD office space last year was 5.3 per cent in Sydney, 5.6 per cent in Melbourne, 6.5 per cent in Brisbane, 7 per cent in Adelaide and 6.8 per cent in Perth.

Office property produced a total return of 13.4 per cent in the year to December. The sector has returned an average of 9.8 per cent a year over the past 15 years, with a standard deviation of 6.3 per cent.

 

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