Office activity linked to resources

While improved economic conditions are leading to increased tenant demand, the large amount of new supply coming onto the market is likely to impact vacancy rates.

CBRE's senior researcher, Kelly Dyball, said the improved economic sentiment would benefit the Perth office market which was inextricably tied to the resources sector.

"The mining and resource sector accounts for 40 per cent of the total office space in the CBD, thus the forecast of a 4.6 per cent annual average of real output growth expected for WA should underpin the sector's recovery over the next five year period," Ms Dyball said.

"As a result, an increase in white collar employment growth is expected to follow between 2010 and 2012 as new resources projects begin to come online."

CBRE's senior director Andrew Denny said the mining sector was driving increased tenant demand for CBD office space, especially enquiry for expansionary space - an indication that businesses were once again "future forecasting".

However, Mr Denny said the market was finely balanced given the quantum of new development currently underway.

"Approximately 100,000 square metres of new stock is set to become available during 2010 which will account for a total increase of 7.3 per cent in Perth's total office stock - the largest increase in almost two decades. This will have a knock on effect on vacancy rates."

"Net absorption is expected to rebound in 2010, underpinned by increased tenant demand, however this may not be sufficient to account for the total amount of new stock that is expected to come to the market this year."

Perth's new supply pipeline is set to remain limited after 2012, Mr Denny said, with no new projects on the horizon due to the difficulties with securing tenant pre-commitments. Given the supply and demand projections, Mr Denny said the market could still go either way.

MIXED DATA FOR CANBERRA MARKET

Canberra's commercial market is forecast to achieve mixed results during 2010 according to the latest Canberra MarketView report by CB Richard Ellis.

The global economic crisis and subsequent budget deficit have hindered overall growth during the past two years; however some sectors of Canberra's commercial market have performed well.

CBRE's analysis shows that office sales volumes have remained high and industrial yields have remained remarkably resilient. However, office rents have continued to face steady downward pressure and retail rents have stagnated.

CBRE's NSW and ACT research manager Luke Nixon said the high level of office sales activity had translated to a 13 basis point tightening in the yields on Grade A buildings in the City, from 8.33 per cent to 8.20 per cent during the first quarter of 2010.

"Canberra's office market has benefited as private and foreign investors sought opportunities involving tenants with good covenants and long lease terms," Mr Nixon said.

However office rents continued to travel downwards - and retail rents continued to stagnate - in trends which illustrate the varied performance of the Canberra market.

"The shortfall of tenant demand in Canberra has exerted downward pressure on office rents and, as a result, the vacancy rate is expected to continue to rise to a peak of 13.5 per cent in 2012," Mr Nixon said.