Brisbane and Perth’s office markets are head and shoulders above their state capital counterparts in terms of capital returns, according to ANZ’s latest Commercial Property Outlook.
The ANZ report cited strong local economies and low office vacancy rates as major factors in stimulating capital returns last year of 22% in Brisbane and a massive 41% in Perth.
“Brisbane and Perth CBD markets are both experiencing acute tightness, with vacancy rates effectively at zero. Market values have correspondingly shot up,” said ANZ senior economist Ange Montalti.
Montalti also pointed to good performances in the Sydney office market, where a low level of new developments and tightened vacancy rates fuelled capital growth of 13.4% last year, and he expects rental values to remain stable.
“Vacancy rates have tightened substantially and are set to fall to an effective ‘zero’ as the supply pipeline remains subdued. Medium-term fundamentals remain intact with little likelihood of a construction boom to undermine rental values,” Montalti said.
Adelaide office properties showed less impressive growth of 10.2% last year, according to the ANZ report, but Montalti believes that the South Australian capital’s office market shows no signs of crashing. “While we expect some slowing in economic growth and in the consequent take-up of office space, the supply pipeline remains manageable and is unlikely to destabilise fundamentals.”
Melbourne offices are performing well, with vacancies at below average levels and a number of commercial developments going up in the Docklands precinct, but the ANZ report highlighted certain factors that could affect future growth in the Victorian capital.
“A key risk for the Melbourne market is an overzealous development sector failing to take heed of the likely fall in absorption. We expect vacancies to lift gradually from 4.4% currently to around 9% by 2010. This shouldn’t destabilise the market but suggests rental and capital growth may be more difficult to achieve later in the cycle,” said Montalti.
