- by Stephen Rose @ CommercialPropertyGuide.com.au
- in Commercial Property Property Market Updates
After the dust settled following the July 2016 federal election, real estate agents’ expectations about the future of commercial property had remained constant.
Commercial Property Guide’s Asking Price Index (API) continues to reflect the mild euphoria towards commercial property in the three major Australian markets and three main property types. This level of rent growth represents a healthy national annual increase of 5% to 6% (ranging month to month) in commercial real estate expectations.
In the past couple of months, commercial real estate agents have started to become excited about the future – almost as enthusiastic as they were at the same time last year. The national annual change in asking rents for commercial property was up by 5.5% compared to the previous year – the rate has been in a range between 5% and 6% for the past 6 months.
“Commercial real estate agents are sensing a demand for commercial space…”
Commercial property is a major factor of production. As a result, there is a strong connection between national economic health and commercial property rent expectations. It is informative therefore to watch how commercial real estate agents are reacting to what they see around them.
The Asking Price Index captures the expectation of real estate agents and their clients. It’s a strategic future view of industry professionals – free from day to day sales tactics. Pure and simple, it’s the forward-looking summary of an informed market view.
- National Commercial Asking Rent Increases have settled at a constant increase between 5% and 6% since the election in July.
- The downward pressure on asking rents from early 2016 has gone away.
- Retail and office properties remain strong across all three major markets of Sydney, Brisbane and Melbourne.
- Real estate agent expectations for Industrial rents are more subdued nationally.
- Overall, Sydney rent expectations have remained the strongest nationally at about an 8% overall increase. While Melbourne rents have increased in a broad monthly range of 2% to 6% indicating uncertainty about the market. Brisbane asking rents have barely kept pace with inflation at a constant 2%.
Property Type Details
Since the middle of the year, industrial, retail and office property types have increased in three distinct bands. Surprisingly, retail properties have increased at about 8% annually. We only measure stand-alone real estate and do not include shopping centres. Lease for offices nationally have an average increase of 5% – driven mainly by Sydney. While industrial rental expectations are now at about 3% on average nationally.
The growth in asking rents for commercial office leases has been increasing since the start of the 2016 year. In January 2016 the rate of rent increases was at about 2% nationally. One year later in January 2017, the annual rent increase is now at about 5%. Melbourne and Sydney especially have seen a return in optimism in leasing for office space from that of a year ago.
Retail rents have seen a spectatular increase during the 2016 year from a healthy 5% to 6% range at the start to an optimism driven peak of 9% in December. This change has happened during a background of media reports of retail chain failure and a general air of retail doom. Recent times have been optimistic months for commercial real estate agents setting retail rents.
Industrial rent expectations have stabilised at about a 3% annual increase after a decline in the first half of 2016. The months leading up to December showed a steady increase in the range of 3% to 4% annual increase. Industrial rent expectations have been low nationally – 3.5% compared to much larger office and retail rent increases.
Regional Results Details
Sydney office rents, along with industrial and retail property types, have seen a surge in rent increases at around 10% annually. The trend is upward from 8% in June 2016 to 10% in January 2017. The increase appears to be continuing into 2017.
The asking rents for retail leases in Melbourne have shown the most volatility from month to month – 4% swings between months with a slow decreasing trend in the annual rate from peaks of 8% in June 2016 to 6% peaks in December 2016.
Brisbane commercial rents have remained flat at 2% over the course of the last 12 months. While other cities (Melbourne and Sydney) have shown marked real estate agent response to environmental events (both positive and negative), Brisbane has remained unaffected by the influence of optimism or pessimism.
About Commercial Property Guide Lease Asking Price Index
Commercial real estate sale and lease asking prices for each suburb used to compile the Asking Price Index, are available at commercialpropertyguide.com.au. The data is updated each weekend.
The Asking Price Index brings together the collective action of hundreds of commercial real estate agents across Australia. The Index is not just one expert’s opinion as to the future direction of commercial real estate price movements. It is a measurement of the change in sentiment of experienced and expert agents who have made tens of thousands of marketing decisions as to the future direction of commercial property. Each week rental prices per square metre are aggregated for each suburb into regions. The current rents are compared to those of three months ago. Weekly changes measured over that quarterly period are averaged on a monthly basis and presented as the Asking Price Index.
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