THE outlook for Sydney's commercial leasing market continues to improve with incentives tightening – unlike Melbourne, Brisbane and Perth, according to the Australian Property Institute’s 34th Property Directions Survey.
The API survey of fund managers, financiers and analysts found lease incentives for Sydney CBD prime, A grade and lower grade commercial property have tightened with respondents seeing a movement from the ≥ 30% range to the 20-29% range.
Lease incentives for Sydney Suburban CBDs are seen to have tightened even further with a movement to the 20-29% range combined with a leaning to the 10-19% range.
Views on lease incentives for Melbourne CBD commercial property seen more uncertain than in October last year however most respondents see incentives in the 20-29% range with a leaning to higher incentives at the ≥ 30% range. While the majority of respondents see lease incentives for Melbourne Suburban CBDs as in the 20-29% range, there is a leaning to tightening of lease incentives.
Lease incentives for Brisbane and Perth CBD prime, A grade and lower grade commercial property are seen as having increased to the ≥ 30% range.
Lease incentives for Adelaide prime and A grade commercial property are seen to be in the 20-29% range and more evenly split between the 20 – 29% and 10-19% ranges for lower grade property showing some tightening of incentives.
Lease incentives for Canberra Prime, A Grade and lower grade commercial properties are seen to have tightened with most respondents reporting the 10-19% and 20-29% ranges.
Respondents are uncertain about leasing incentive levels for Hobart for Prime, A grade and lower grade commercial property.
Despite the dim forecast for incentives outside of Sydney, API NSW senior vice president Ian Muir said the survey indicates a strong outlook for the next two years for commercial, industrial and retail property markets in Sydney, Melbourne and Brisbane.
Muir said a small majority of respondents see effective rents in Sydney increasing over the next six months, however there is a strong leaning towards stable rents.
59% of respondents see effective rents as stable for the next six months in Melbourne, with a leaning of 35% to increasing effective rents.
In Brisbane, the large majority of respondents see effective rents as either declining or being stable for the next six months with the majority view evenly split between these two predictions.
For the next 12 months, respondents see effective rents as increasing while a small majority of respondents see Melbourne effective rents as stable but with a strong leaning to increasing. A majority of respondents see Brisbane effective rents as declining to stable for the next 12 months, however there is a slight leaning to declining effective rents.
Muir said commercial, industrial and retail property markets in Sydney, Melbourne and Brisbane will progress along the upswing of the property cycle over the next two years.
“Currently, commercial property in Sydney and Melbourne is seen as being the furthest along the upswing of the property cycle, with Brisbane having commenced the upswing.
“In one year’s time, survey respondents expect that Sydney’s commercial property market will be nearing the top of the property cycle, while Melbourne and Brisbane remain at the same stage of the cycle as they are currently.
“By 2017, it is expected that Melbourne’s commercial property market will have advanced quickly to be at the top of the property cycle along with Sydney, while Brisbane will have advanced along the upswing,”
“Currently, industrial property markets in all three cities are on the upswing of the property cycle, with Sydney the most advanced. In 2016, it’s expected that the Sydney and Brisbane markets will remain at the same stage of the upswing, while Melbourne will advance.
“By 2017, Melbourne’s industrial property market is expected to have advanced quickly to the top of the property cycle, while Brisbane and Sydney will have moved further along the upswing,” Muir said.
Respondents believe the retail property markets in Sydney, Melbourne and Brisbane are currently at the same stage of the upswing. In 2016, retail property in Sydney and Melbourne is expected to move further along the upswing of the property cycle, while Brisbane remains at the same stage as in 2015.
By 2017, retail property markets in all three cities are seen as being at the same stage near the top of the property cycle, with Brisbane retail property advancing more quickly to reach this position.
“In terms of growth projections for “real movement” above CPI over the next 12 months, respondents see an improved outlook for all property types in Sydney. Market values and rents for CBD and suburban CBD commercial property, and industrial and retail property, are expected to increase at faster rates than predicted in our October 2014 survey.
“In Melbourne, market values and rents are expected to increase at a faster rate than predicted last October for the Melbourne CBD and suburban CBD commercial property and for retail property. Market values and rents for industrial property are expected to increase, but at a slower rate than predicted in the October 2014 survey.
“In Brisbane, market values for commercial property are expected to decrease at a slightly faster rate than predicted in October 2014, while market rents will decrease at a slower rate than previously predicted. Market values and rents for industrial property are expected to rise but at a slower rate than predicted last October. Retail property market rents are expected to rise rather than decline as predicted last October,” Muir said.
Meanwhile a large majority of respondents still see moderate to strong investment growth for Australian listed and unlisted property trusts and syndicates over this time period, although the majority view for such growth is not as strong as it was in October 2014.
Sentiment is stronger than in October last year for moderate to strong investment growth in international listed trusts and unlisted trusts and syndicates over the next 12 months.
63% of respondents predict non-residential property will outperform the equity market over the next year. In three years’ time, a small majority of respondents expect non-residential property to perform at the same level as the equity market.
Australian Property Journal
