Suburban office market outshines the CBD as rents climb

Start-ups looking for office space are being increasingly drawn to the suburbs over the CBD, as rents climb across the capital cities, according to property firm Colliers International. 

The firm says white-collar tenants who delayed plans to acquire space during the global financial crisis have re-entered the market, but the lack of new office developments means there is unlikely to be enough stock available.

The shortage will be most evident in Sydney and Melbourne’s resurgent metropolitan markets, where the vacancy rate is tipped to fall substantially in 2011.

Nerida Conisbee, Colliers International national director of research, says while the spillover demand from CBD office growth is a factor, there is also increasing demand from tenants already based in suburban office precincts.

Melbourne’s metropolitan market recorded the biggest improvement, with the vacancy rate falling from 7.3% to 5.8% in the six months to the end of March.

The strength of Melbourne’s outer market even surpassed the CBD, where the vacancy rate stands at 6.2%.

Colliers predicts Melbourne’s metropolitan vacancy rate will fall to 3.8% in the next 12 months due to a lack of new projects.

Most Sydney markets also recorded a lower vacancy rate, dropping from 9.9% to 9% overall in the six months to March.

The lack of new supply in North Sydney has helped to push up prime net face rents to between $560 and $680 a square metre.

The total vacancy rate is expected to fall well below 10% because construction of new office space isn’t expected to get underway until mid 2014.

“The lag in construction completions and pent-up tenant demand has resulted in downward pressure on vacancies and upward pressure on rents,” Conisbee says.

According to Colliers, the vacancy rate in Brisbane’s outer office market has declined to 9.5%.

Brisbane’s fringe office market has also received a huge increase in demand, with annual net absorption rising to more than 100,000 square metres, which is double the long-term average.

Meanwhile, a number of large leasing deals has provided a boost for Adelaide’s market, where yields for A-grade buildings improved by 25 basis points.

However, the vacancy rate in the fringe jumped to a high of 8.9% in January this year, up from 5.6% in July 2010.

The news contradicts claims made by Nick Hoskins of real estate agency Knight Frank, who says there are no major improvements in suburban office market conditions tipped for 2011.

Hoskins says suburban markets have been shielded from the impact of the global financial crisis, which hurt conditions in the CBD, and will therefore remain largely the same.