ABSORPTION RATE FOR OFFICE SPACE PICKS UP

THE Property Council’s July 2011 Office Market Report shows a further strengthening in the Australian office sector over the first half of 2011, with the Gold Coast slowly absorbing supply.

Despite a stifled commercial development sector and one of the largest office gluts in the country, senior director of CBRE’s office services Tania Moore says the market is improving.

Moore says 2011 is the first year in more than eight years where no significant supply additions were reported. This had been reflected in the reduction of vacancy across the market and net absorption reaching 9136sqm over the past 12 month period – representing the most significant take-up since before the GFC.

“Rental rates and incentives have remained steady in the A grade market, however with the flight to higher quality stock, rental adjustments are being made in B & C grade markets to try to stem the flow,” she says.

“With the majority of Gold Coast office buildings being over 20 years old, we have seen a refurbishment trend emerge over the past six months with several B grade properties undergoing significant makeovers to entice new tenants and retain sitting tenants, which is proving to be a well received strategy.”

Moore says the majority of vacancy was in the sub-250sqm range and larger tenants were limited for choice with only 10 in 165 Gold Coast office buildings having opportunities above 750sqm. This reduced further for those tenants seeking 1000sqm floor plates.

“With some substantial requirements in the marketplace and no significant supply additions we anticipate the market will continue to improve,” says Moore.

CBRE executive director of global research and consulting Kevin Stanley, says the national results supported the recent actions of investors weighing into the office sector.

“Market fundamentals are continuing to improve and this will inevitably lead to a rise in rents and values,” he says.

”While most leasing agents report that low business confidence is resulting in protracted leasing negotiations, ultimately more office space is being filled across Australia. The ongoing expansion of occupied business space has pushed vacancy down in the first six months of 2011 in all major office markets, except the Sydney CBD.”

Stanley notes that the early measure of an office market recovery was net absorption, which is the change in the amount of occupied office space between two points in time.