Property
Issue No. 49 - October/November 2009
Office market a tight squeeze
by Mr Kel Spencer
Nationally, the commercial office market is being particularly hard hit in the economic downturn because the crisis has affected the financial services sector principally, as opposed to a real economy.
The first sufferers of any globally synchronised economic downturn are retail spending, small business takings, employment and leisure/tourism.
Since Australia’s unemployment rate is still forecast to rise to 7%-8%, even as the economy recovers, the demand for office space will continue to ease in lockstep until the labour market rebounds.
It was recently reported the Property Council of Australia’s estimate of Australian office property vacancy rates has risen from 5.9% to 8.3% in the past six months alone with analysts expecting conditions to decline further before they improve.
The dilemma for commercial property is that it is highly influenced on a delayed basis to the traditional economic cycle. Small increases or decreases in vacancy rates can trigger dramatic changes in valuations.
All office markets are being impacted by the global economy moving towards recession and Adelaide is not immune. More job-cut announcements are inevitable, which are likely to result in negative absorption and more sub-lease space coming on-line, which is likely to put further pressure on effective rents. Despite this, the limited supply coming on-line in 2009 should keep vacancy levels well below the long-term equilibrium. (Table 1).
Also, the high GDP figures recorded in the June quarter, if sustained, may mean Adelaide enjoys a soft landing compared with the commercially over-supplied eastern seaboard markets which were hit hard by the severe downsizing of the financial services sector.
In the six months to July 2009 the PCA reported –13,307m² of space absorbed within the Adelaide frame market - the lowest since July 1996. A Grade posted an increase in vacancy from 0.4% to 2.6%, driven solely by net absorption of –7487m² (Ta...
