06/05/2010 - 08:11

Perth CBD occupancy costs most expensive

06/05/2010 - 08:11

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Perth CBD occupancy costs remain the most expensive in Australia, despite falling 27 per cent in the past twelve months, according to a new Global Office Rents report from CB Richard Ellis.

Perth CBD occupancy costs most expensive

Perth CBD occupancy costs remain the most expensive in Australia, despite falling 27 per cent in the past twelve months, according to a new Global Office Rents report from CB Richard Ellis.

On the flipside, Adelaide and Christchurch have bucked the trend of falling rents around the globe according to the semi-annual report which tracks the world's most expensive office markets as well as those with the fastest changing occupancy costs.

London's West End remains the world's most expensive office market, with Hong Kong's Central Business District (CBD) having risen to second place in the CBRE rankings, which track office occupancy costs in 176 cities around the globe.

The report measures office occupancy costs in U.S. dollars - hence the rankings are affected both by the local market dynamics of supply and demand as well as currency changes.

"We've found currency fluctuations play a big role with regard to where markets rank in the top 10 for office costs," said Dr. Raymond Torto, CBRE's Global Chief Economist. "However, the "most expensive club" still includes the usual names - London, Hong Kong and Tokyo."

The report also found that on a year-over-year basis, global occupancy costs are searching for a bottom, with the markets monitored revealing a collective drop of -4.6% worldwide over the 12-month period ending March 31, 2010. The majority of markets experienced a decline, with 33 registering double-digit percentage-point drops in office occupancy costs. Only 53 markets - including Adelaide and Christchurch - experienced annual increases in occupancy costs.

"While economic data reflects improvements year over year, the commercial real estate market lags the economy, and our occupancy cost survey still shows falling costs," added Dr Torto. "On a quarter over quarter basis, rental data in these markets are showing a bottoming, and in some locations, such as London, even a modest uptick."

In the Pacific context, Perth was one of the biggest international movers. The West Australian capital was most expensive market in the global rankings at 35th position, with occupancy costs of US$59.20, despite also experiencing the third largest decline in local measures, at -27%.

CBRE Global Research and Consulting Executive Director Kevin Stanley said the rents monitored in the report discounted incentives, which had driven Sydney below Perth.

However, Sydney was not far behind in the rankings of the world's most expensive at #42, having moved up six spots in the global rankings in the last six months.

"In the Melbourne CBD, rents were stable over the period, however this market moved up 14 positions in the rankings to be placed at #85; a larger positive move than any other market in Australia or New Zealand, based on the strength of the rise in the value of the Australian dollar against the US dollar. Yet Melbourne rents are still very affordable by global standards," Mr Stanley said.

"Adelaide was the other big mover; up 13 spots in the rankings to #107 with the market driven up by both an actual small rise in rents (1.5%) and the exchange rate effect."

In New Zealand, all markets moved down the rankings of the world's most expensive rents, influenced by falling rents in the case of Auckland (-8.5%) and Wellington (-6.3%) and a falling exchange rate in the case of all the markets. Christchurch rents moved up 2.6%; the highest in the region in absolute terms.

Based on CBRE's fastest changing analysis, most markets in Australia and New Zealand slipped down the rankings, as other regions of the world start to move ahead of the Pacific, especially Latin America and the UK.

"Finer local monitoring reveals rents in most office markets around Australia are now stable and it's a question of when, not if, they start growing again," Mr Stanley said.

"Our forecasts suggest Melbourne, Sydney and Adelaide will be the first to post the strongest growth from the second half of 2010."

CBRE Regional Director, Office Services, James Patterson said rental growth in Sydney and Melbourne was being underpinned by increasing business confidence and a "flight to quality", as corporates reviewed new space options.

"Sydney is driven by the financial sector and that market is rebounding quite quickly," Mr Patterson said.

"This time last year we didn't see any deals negotiated north of $700-$750 a square metre net. However, we're now seeing deals being done at rents of $1,000-$1,200 a square metre at the premium end of town."

In Melbourne, CBRE Senior Director of Office Services for Victoria Hamish Sutherland said the significant reduction in sub lease space in the past 12 months was one of the indicators of stronger market fundamentals.

"In Melbourne, economic rents - those that justify new construction - are substantially higher than in previous cycles," Mr Sutherland said.

"In addition, while Melbourne is forecast to show strong rental growth this market remains extremely cost competitive offering considerably lower rents than Sydney, Perth and Brisbane."

 

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