Office and industrial rents on the rise

Office rents are on the rise as leasing conditions continue to improve, according to a new report by commercial property firm CB Richard Ellis.

According to the latest CBRE Australian CBD Office MarketView, as much as $13 billion is tipped to hit the Australian property market in the next year as investors look to snap up premium-grade assets.

This has been prompted by a forecast improvement in the underlying fundamentals of the commercial real estate market including increased demand for space and less development.

The report reveals that while Sydney is currently the most expensive city with regard to office space, the resources boom will fuel growth in Perth and Brisbane, with Perth predicted to be Australia’s most expensive office market by 2015.

“Perth is expected to be comfortably the nation’s most expensive office market on average by the end of 2015, despite being briefly challenged by Sydney over the next couple of years,” the report says.

Meanwhile, Melbourne’s CBD is tipped to achieve the strongest growth between 2011 and 2015, with 5.2% net face rental growth compared to the national average of 3.8%.

Perth CBD is expected to gain 4.2% a year while Adelaide can expect growth of 4.8%. Sydney will grow by 3.8% followed by Brisbane at 3.3% and Canberra at 2.2%.

CBRE says the overall improvement in office markets has finally affected leasing and sales figures in the second half of 2010; vacancies fell by 0.4% to 8.3% from July to January.

“The decline in the vacancy rate was a result of a combination of low supply levels and consistent demand throughout the year,” CBRE says.

The office rental market is not the only category experiencing growth, with real estate advisory firm Jones Lang LaSalle saying industrial property rents have also shot back up.

According to the company, average premium-grade rents increased as much as 10.2% in the year to December 2010 on the back of dwindling supply caused by a slowdown in speculative building.

In Brisbane’s south, there was a 5.3% increase in net face rents over 2010, and they are likely to keep rising as large companies like Bunnings seek space for growth.

In Perth, some areas demonstrated remarkable growth, rising 10.2%, while Sydney experienced a 6.5% jump in rental growth in the south of the city.

Rental growth in Melbourne was lower than other capital cities but remained in positive territory; the biggest increase in 2010 was 2.6% in Melbourne’s south east.

According to Michael Fenton, Jones Lang LaSalle national head of industrial services, the demand from tenants seeking space is a key part of rental growth.

“There is a genuine lack of supply of good quality space. That’s because there has been a lack of development for two years,” Fenton says.