Divide within CBD office markets deepens: CBRE

The great divide facing Australia CBD office markets deepened in the third quarter of this year.

While office investment activity soared in the three months to September, CBRE’s latest Q3 Australia Office MarketView report showed that weakening business investment across the board had prompted occupiers to increase their focus on preserving margins.

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“As a result of occupiers adopting cost saving measures, employment growth in the office market has slowed markedly, while a number of CBD tenants are also consolidating or contracting operations and therefore, space requirements,” the report said.

CBRE Senior Research Manager Claire Cupitt said that had led to negative net absorption in all markets so far this year.

CBRE is forecasting that in 2013, a total of 170,000 square metres of negative net absorption is due to be recorded in all major CBD’s  nationally – 30,000 square metres more than in 2009 during the depths of the Global Financial Crisis.

Hardest hit has been the Brisbane office market, with the CBD recording about 90,000 square metres of negative net absorption.

Ms Cupitt said it was anticipating demand for space over the next few years would be largely driven by the business service sector in line with broad sector based economic improvement.

The report also highlighted the rise in sublease availability across Sydney, Melbourne, Brisbane and Perth, pointing out that in some cases it was at historic highs.

“Space consolidation and contraction accounts for approximately 80% of sublease availability in the Sydney CBD,” it noted.

CBRE regional director of office services Andrew Tracey said in line with the shift in sublease availability, incentives had increased in most markets.

Melbourne and Brisbane CBD incentives are currently around 30%, while Perth CBD incentives also continue their upward momentum, with expectations of 14% by the end of the year.

The national vacancy rate stood at about 10.1%, but CBRE pointed out that several capital city markets experienced record high availability. Melbourne vacancy rates have peaked at 9.8% – up from 7.0% in July and Brisbane’s CBD has reached an unprecedented 14.1%.

Rents remained unchanged in the quarter.

Despite those weakening fundamentals, investment activity remained strong in the third quarter, with domestic and offshore investors outlaying $3 billion purchasing office assets around the country.

The Sydney CBD accounted for $785 million worth of sales during the quarter.

CBRE is tipping prime yields in Sydney to hover at 7.20% by the end of 2013 – down 30 basis points from December 2012, while Melbourne prime yields are expected to average 6.8% at the end of the year.

Brisbane prime yields are forecast to average around current levels of 7.70% at year end and Perth yields are also expected to remain steady at 8.00% into early 2014.

This article first appeared on Property Observer.