31/01/2014 - 12:16

Retail, residential strong in 2014

31/01/2014 - 12:16

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Investor confidence and demand for business premises will generate opportunities in the property sector in 2014, but it won’t be in the traditional high transaction area of office leasing.

Retail, residential strong in 2014
CHANGING FACE: Perth’s office leasing market will no longer be the standout sector in Peth property in 2014.

Investor confidence and demand for business premises will generate opportunities in the property sector in 2014, but it won’t be in the traditional high transaction area of office leasing.

Buoyant retail and residential markets and a solid industrial sector will offset challenging conditions for Perth’s office landlords during the next 12 months, according to market analysts.

Research released by Colliers International shows Perth’s strong population growth and continued low interest rates will drive strong investment in retail and residential property markets, with Australian Bureau of Statistics figures showing Perth on track to become Australia’s third largest city by the late 2020s.

Colliers International manager of research and urban economics, Michael Knight, said the residential sector was gearing up to meet the growing demand.

“We’re already seeing activity increasing in the residential sector, with more than 2,300 apartments expected to come online in the inner city and almost 70 per cent of them already sold,” he said.

“At the same time, the residential construction sector is looking at a positive 2013, after racking up a strong recovery in land sales and building approvals in late 2013.”

The strongest performing retail sectors are tipped to be fresh food, take-away food and convenience goods, with retail lease incentives continuing to be a feature of the market in 2014.

There are also high hopes for the hotel sector, Mr Knight said, with 17 proposed projects across the CBD and surrounding areas potentially adding more than 2,900 rooms to the market.

While the slowdown in mining services drove the Perth office market vacancy rate north of 10 per cent in 2013, analysts are predicting leasing demand to pick up over the next 24 months as new supply hits the market.

Research by Jones Lang LaSalle showed Perth’s CBD market experienced negative net absorption of 84,400 square metres in 2013, with many businesses reducing their demand for office space and little new supply being made available.

Sublease space decreased by 10,431sqm to 70,222sqm, or 4.5 per cent of the market, but CBRE analysts said the majority of the reduction was due to space expiring and reverting to direct vacancy.

New office supply is expected to be modest in 2014, with about 30,000sqm to be added by developments at 32 St Georges Terrace and 863 Hay Street.

In 2015, new development supply is forecast to be substantially higher, with Mirvac’s Justice Tower, Brookfield Place stage 2 and four office developments at Kings Square set to be completed.

CBRE regional director of office services, Andrew Tracey, said while sublease space was expected to remain a significant part of the Perth market in the short-term, the latest forecasts showed the market appeared to have peaked.

“There is an expectation that space will be reabsorbed by tenants if business conditions show sufficient improvement,” Mr Tracey said.

Colliers International director of office leasing Neil Kidd said 2013 was a year of considerable uncertainty due to the mining slowdown, as well as state and federal elections.

“Behind all of this, though, the WA economy continues to be solid,” Mr Kidd told Business News.

“We believe that demand will pick up in 2014-15 when the new supply comes through.

“While the vacancy rate will peak in early 2016, we expect that level of demand will be strong enough that vacancy will start falling after this.”

The past 12 months were also marked by a very strong level of commercial transactions reaching settlement, with more than $1.6 billion in deals concluded for assets above $10 million.

Institutional investors accounted for 92 per cent of major CBD sales in 2013, up from around 58 per cent in the previous two calendar years.

Colliers International director of investment services Ian Mickle said development sites at Elizabeth Quay, The Springs, Old Perth Port and City Link all enjoyed strong market interest, as greenfields sites or value-add propositions attracted local and offshore developers.

He said the sale of Harbour Town for $205 million to a Singaporean investor in October last year was a good example of a developer looking at the untapped development potential of a key asset in close proximity to public transport.

Mr Mickle said there was likely to be continued interest from the development sector in 2014, but forecast a dip in commercial asset transactions due to the limited supply of assets for sale.

Last year was generally tough going for leasing in the industrial land sector, with transactions coming in almost 50 per cent lower than 2012 and the amount of space leased down 30 per cent.

But the industrial sales market was reasonably strong, Colliers International director of industrial Wayne Chorley said, with the appetite for well-leased investment stock from east coast institutions and local high net worth investors at unparalleled levels.

“Looking ahead, renewed business confidence is slowly trickling through in the form of increased inquiry and lease activity,” Mr Chorley said.

“We are seeing the first green shoots of a leasing recovery as business confidence and hence demand for space increases.

“Industrial investment property will continue to be highly sought after as the demand from self-managed super funds, local high net worths and east coast institutions continues unabated – all have mandates to acquire investment stock, and they are playing in a market with limited supply.”

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