COMMERCIAL LEASING TO IMPROVE IN 2012

Written on the 3 January 2012

COMMERCIAL LEASING TO IMPROVE IN 2012

2012 will see a slight recovery in the Gold Coast’s sluggish commercial property sector, according to Ray White Commercial.

Gold Coast team leader Glenn Cream, expects further take up in office vacancies and is buoyed by the fact that 2011 has seen leasing deals rise around 10 per cent compared to 2010.

Cream attributes the turnaround to improved sentiment following two successive interest rate cuts, lower leasing rates and better incentives. However, challenges will continue for retailers due to record levels of outbound tourism, together with increasing labour and utility costs that have placed further pressure on occupancy costs.

“We secured 149 commercial leasing deals this year as opposed to 130 the year before,” he says.

“The opportunities are getting better and better and landlords with realistic expectations are landing quality tenants. The average deal is 10 to 15 per cent less in value while incentives are consistently at 15 to 20 per cent of the gross lease term, so businesses are seeing the current market conditions as an ideal opportunity to improve the standard and the location of their space.

“We have seen a number of A and B grade properties begin to fill up due to the fact rental rates are so competitive. Tenants who were in C grade properties can afford to be in something better for the same sort of rent. So it is a great incentive for these groups to move their businesses to better location and a better property.”

CBRE’s head of research for Asia Pacific Nick Axford, says the short-term outlook for the office sector remains positive, despite the instability in regional stock markets and the worsening economic situation in the United States and Eurozone.

“Rental growth is likely to continue to moderate slightly in the months ahead as the external economic volatility will continue to weigh on business sentiment in the region going forward,” he says.

Ray White data suggests the vacancy rate has dropped to 22.4 per cent following a total net absorption of almost 6600sqm in the first half of 2011, but CBRE figures indicate office vacancy has eased to 19 per cent – the lowest level in two years and well below its peak of 25 per cent.

Strata title offices are a significant component of the overall Gold Coast market, accounting for some 31 per cent of total office space – or 145,100sqm. This compares to about a 4 per cent share of total office space in the Brisbane CBD, a 10 per cent share in Sydney and near 6 per cent share in Melbourne.

The largest amount of Gold Coast strata space is in the Robina and Varsity Lakes precinct (54,400sqm); followed by Southport (45,400sqm); Surfers Paradise (22,300sqm) and Bundall (21,800sqm).

Glenn Cream says an upswing in leasing combined with the lack of new office projects on the horizon would help grind down the city’s vacancy rate.

“Net absorption is strengthening and will continue to drive vacancy lower given that we are not going to see a lot of new office infrastructure in the foreseeable future,” he says.

“That trend is some consolation for landlords who have weathered some difficult years thanks to the addition of 130,000sqm of space to the market since 2006 and then the financial crisis. For tenants 2012 is an opportunity to position their business for the future with a superior location and more favourable lease terms ahead of the next economic upswing.”

He says 2012 would likely to see the emergence of office space sharing on the Gold Coast, a concept that is fast gaining traction in Melbourne in Sydney.

“Shared office space allows individuals or small enterprises within an industry to share a larger space with access to greater facilities including boardrooms while creating a collaborative work environment,” says Cream.

“A desk is leased for a monthly fee which covers all outgoings and due to number of small businesses and creative and technology related industries on the Gold Coast this is something we expect will rise to prominence locally over the next 12 months.”


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