Offices to outperform other commercial sectors: NAB

By Larry Schlesinger Wednesday, 27 July 2011

Investors in offices will benefit from strong capital growth and higher rental increases relative to other commercial assets over the next two years, according to NAB’s June quarterly commercial property survey.

For the June quarter, the offices sector was the second-strongest performing commercial sector after hotels.

However, offices are forecast to overtake hotels as the best-performing commercial property sector over this two-year period.

Capital value are tipped to rise by 1.6% by June 2012 and 3.5% by June 2013, according to the 300 respondents comprising real estate agents, property developers, investors, valuers and fund managers.

The office sector also leads rental growth expectations, with gross rents expected to rise 0.8% in 2011, 2.3% in 2012 and by 3.8% in 2013.

Office expectations have however been revised down from the March quarter survey when 2.8% capital growth was forecast by March 2012 and 4.3% forecast by March 2013.

The CBD remains the best-performing location for office property, especially in Queensland.

Overall office markets conditions are expected to improve in all states led by WA where renewed business expansion plans, especially in mining-related companies, will drive demand for office space.

A survey carried out by Macquarie Bank and the Property Council of Australia forecast Perth prime office rents to rise to $859 per square metre by January 2012, the highest nationally, with yields of 7.6%.

NAB expects that the continual recovery in financial and business services sectors will lead the recovery in NSW while Queensland’s office market will benefit as the mining boom begin flowing through the economy.

Rental expectations are strongest in WA and weakest in Queensland where vacancies are highest. Incentives remain a key feature of the office property leasing market in all states bar WA.