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Australia Real Estate Report Q2 2011
Business Monitor International, March 2011, Pages: 64
Australia Real Estate Report Q2 2011 - Our latest interviews with in-country sources in Brisbane, Melbourne, Perth and Sydney confirm that conditions in Australia's commercial real estate sector are stable, albeit rather quiet.
The country's economy sailed through 2008 and 2009 without too much difficulty but the global financial crisis and a series of national disasters have helped to turn the average consumer into the average saver. A series of interest rate rises has successfully curbed inflation and now, despite almost full employment, the general public are reducing household debt and tucking away their incomes. This lack of confidence has weighed heavily on the commercial real estate market and rental rates had dropped off substantially through 2009.
In 2010, the dynamics of the industry showed their strength and the lack of over-development allowed the market to stabilise. Although we have limited information about vacancy rates, where we do have figures, they are low. For example, there stands just 2% of vacant retail space in Perth. Local sources suggest that although rents for it should rise over the next year or two, it will be gradual and this implies that even where vacancy rates are so very low, the balance of supply and demand is healthy.
Supply has been limited as many development projects were taken offline during 2008 and 2009. This lack of new space becoming available now should help rental rates to start increasing, possibly as early as the second half of 2011, if consumer confidence recovers. The biggest threat to the recovery of confidence, although also somewhat of a threat to supply too, is likely to be more large-scale natural disasters caused by the inclement weather.
One key feature of the commercial real estate sector in Australia is that despite rental rates dropping in the other sub-sectors, industrial space held its ground throughout the last few years. Looking forward, our sources are reasonably optimistic, as they envisage that rental rates will for the most part move sideways (and in some cases increase slightly) throughout both 2011 and 2012.
Rental yields have been rather inconsistent in the second half of 2010, having remained absolutely stable from 2009 through to H110. The most recent interviews with in-country sources have indicated that yields have tended to converge around 7% but that there were some particular exceptions. One notable exception is the sudden drop in retail yields in Melbourne, from 6-7% in 2009 and H110 to just 4% in the second half of 2010.
Our local sources think that we are likely to have a particularly stable period for net yields – across the board – in the coming year or so, albeit with some small fluctuations. The exceptions are the potential for an increasing yield from office space in Perth and retail space in Brisbane, which is forecast to drop slightly by 2012.
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