Sensational-Adelaide.com

Tight supply drives up office rents

http://business.smh.com.au/tight-supply ... -1fqd.html

OFFICE markets experienced record-breaking growth around the country this year.

It was the year when landlords came back as the rulers of the CBD rental market thanks to high office demand and zero new supply.

One of the very few new developments to be finished was the American Express building at King Street Wharf, by Multiplex.

The completion of Multiplex's 12 Shelley Street brings the total value of finished product at the $1.1 billion King Street Wharf precinct to about $800 million, with only Multiplex's One Shelley Street (Macquarie Bank building) and an Ibis Hotel, both under construction, remaining before the landmark precinct is fully completed.

The 11-storey, 12 Shelley Street building comprises 14,954 sq m of net lettable area. American Express has leased the entire commercial office component (14,492 sq m) under an 11-year lease.

Record low vacancy levels were experienced in the Brisbane CBD, Perth and West Perth markets. Subsequently net effective A-grade rents in these markets grew 35 per cent, 45 per cent and 4 per cent respectively. Adelaide CBD experienced the highest net absorption since the Property Council of Australia started collecting data more than 15 years ago.

Savills predicts vacancy levels in Sydney will be about 4 per cent at the beginning of next year, and will fall to about 2.5 per cent by the end of 2008.

The firm said the city would experience modest net absorption with white-collar employment growth, but the biggest factor affecting vacancy would be a number of secondary buildings being taken out of the office market to build new A-grade office towers.

Savills' director of research, Belinda Nowland, said most notably these secondary-grade buildings were in the core area, and included five buildings on DB RREEF's "Space" development site and the Kindersley House development in O'Connell Street.

Secondary-market rents have not moved as quickly as A-grade rents, but are expected to grow solidly next year as vacancies in the secondary grade tighten.

"Sydney saw a dramatic tightening in the prime office space, and subsequently saw net effective A-grade rents rise by 28 per cent, and average incentives fall from 22.5 per cent to 15 per cent," Ms Nowland said.

"Going forward, we expect further tightening of the prime and secondary markets and strong rental growth over 2008."

At the beginning of this year, there was concern for the North Shore office market after Optus left several sites to move to its new premises in North Ryde.

There has, however, been surprisingly good tenant interest in the North Shore and it is predicted to continue.

LandMark White's NSW managing director, Tyrone Hodge, said the Sydney CBD commercial market had had a very strong year, with every sale seemingly setting a record low yield.

The market has been driven by fund managers and developers wanting to cash in on the lack of future supply of space.

"Many recent sales and lease deals have also reflected A-grade prices in non-core CBD locations. This trend is likely to continue in 2008 and will see a continued strengthening of other commercial markets such as North Sydney," Mr Hodge said.

The Parramatta director, Michael Clarke, said the Parramatta CBD had continued to grow in popularity with institutional investors in both the office and retail sectors of the market. "Whilst the core office area remains tightly held, the more fringe locations are being sought, around the railway/bus interchange," he said.

momentkiller wrote:Well, considering that in Sydney theyre tearing down 100m+ buildings to make way for new towers, and we have vacant blocks here right in the CBD, why not make Adelaide CBD one of those Economic Tax-Free Zones like they have over in the Middle East. Now I know a lot of businesses would jump to the oppurtunity to capitalise on such prospects.

sensaSEANal wrote:they are just crying out for australia's tallest building!!!!

aussie2000 wrote:this is good news, although, it looks like there won't be any observation deck.