Oversupply not like the 1990s
Written on the 17 April 2009
JONES Lang LaSalle is predicting the Brisbane commercial property market will not face the extent of oversupply experienced in the early 1990s.
Research director Leigh Warner told a client briefing breakfast that CBD vacancy rates will rise rapidly to 10 per cent over 2009, but will stabilise and strengthen by 2011 as employment growth recovers.
“By the time the recession hit in 1990 the Brisbane office market had grown by 38 per cent over the preceding four years, vacancy had already reached above 8.5 per cent, and the buildings under construction were the ‘speculative froth’ at the height of a building boom,” says Warner.
“The current economic slowdown has hit at a time when vacancy remains very low after an extended period of under-supply and, while 2009 will see a record 221,400sqm of stock added to the market, it is around three-quarters committed and far from speculative froth,” he says.
“It’s not hard to see that this cycle is quite different to the last cycle for Queensland’s economic growth.”
Warner points to the office sector as being the most at risk due to ‘lumpy’ construction, but it will be better off with public sector jobs more secure under the Bligh Government.
“Love her or hate her, Anna Bligh’s win is probably a good thing for the office market. I mean, the LNP probably would have cut the public service significantly, and it’s been a big source of demand for the office market here in Brisbane.”
But the worst is still to come for the industrial property market.
“A lot of companies have been running up inventories quite a bit, and they’ll come to the stage when they’ll run down those inventories and then they’ll get rid of surplus space.”
“But efficiency and value for money will eventually attract occupiers back.”
CBD office effective rents are expected to fall a further 25 per cent by the end of 2010 but even at this trough they will be 13 per cent higher than the start of 2007.
He believes Brisbane is better placed than Sydney or Melbourne because of a number of factors including less exposure to the finance and insurance industry ‘at the heart of the downturn’, and the property market here still holds a strong value prospect.
Population growth will also be a strong support base in the short and long term.