Commercial vacancy rates to stabilise in 2010

At the inaugural Raine & Horne Commercial Business Breakfast series in Sydney on 9 December 2009, keynote speaker Scott Lennon said commercial property vacancy rates were set to stabilise in 2010.

An economist and partner with PricewaterhouseCoopers Mr Lennon explained, “During the boom years between 2006 and 2008, there were fewer vacancies. However, during the global financial crises, businesses cut costs by reducing their space requirements and sub-letting.”

“As the number of available square metres increased, vacancy rates crept up to around 9%. But as 2009 draws to a close market confidence has strengthened, vacancy rates have stabilised and we are starting to sees signs of a take-up of space in the new year as businesses look to cater for growth ambitions in 2010.”

“Unemployment rate predictions have also been scaled by from 8.5 per cent to between 6 and 6.2 per cent. The link is that with more people remaining in the workforce businesses will need to rethink their space requirements.”

At the breakfast, Mr Lennon also talked about the natural “weapon of choice” for landlords to obtain new leases or lease renewals during the GFC - incentives

He said, “In some cases landlords had to increase incentives to 20 or 25 per cent, the equivalent of between two to 2.5 years rent free on a 10-year lease, but with the economic recovery improving conditions during late calendar 2010, the size of incentives was reducing towards more normal levels.”

After a difficult few years for commercial property, Raine & Horne Commercial CEO Angus Raine, who hosted the breakfast at Sydney’s Four Seasons Hotel, said 2010 should present cashed up buyers with opportunities on the back of an improved economy.

“Clearly indicators such as stronger motor vehicle sales, rising vacancies for skilled workers and better than expected construction activity data for the September quarter are excellent signs for 2010,” said Mr Raine.

Superannuation is another theme set to impact commercial property in 2010, according to Raine & Horne Commercial CEO.

“The pot for super is growing and I believe commercial property will attract more interest from retail, industry and self managed super funds in 2010 as its more stable asset class than shares,” explains Mr Raine.

“Listed and unlisted property trusts are looking for good covenants and long leases and will be sifting through blue ribbon commercial property opportunities next year.”

Mr Raine said regional towns such as Tamworth, Wagga Wagga and Port Macquarie were also squarely in the sights of commercial property investors in 2010.

“Commercial returns in regional centres such as Tamworth and Wagga are very good options because of the scarcity of available commercial properties for sale,” Mr Raine said. “The Tamworth CBD sells in the vicinity of 7% net yields, which is very good for a regional city.

“Regional centres, particularly in NSW, are emerging, so Raine & Horne Commercial is opening new offices in towns such as Tamworth, which will bring in a new level of sophistication to the services that the commercial agents provide there.”

Mr Lennon, economist and partner with PricewaterhouseCoopers, said that during the boom years between 2006 and 2008, there were fewer vacancies but that during the GFC, businesses cut costs by reducing their space requirements and sub-letting.

“As the number of available square metres increased, vacancy rates crept up to around 9%. But as 2009 draws to a close, market confidence has strengthened, vacancy rates have stabilised and we're starting to sees signs of a take-up of space in the new year as businesses look to cater for growth ambitions in 2010," Mr Lennon said.

“Unemployment rate predictions have also been scaled from 8.5 per cent to between 6 and 6.2 per cent. The link is that with more people remaining in the workforce, businesses will need to rethink their space requirements.”

Mr Lennon also talked about incentives, the natural “weapon of choice” for landlords to obtain new leases or lease renewals during the GFC.

“In some cases landlords had to increase incentives to 20 or 25 per cent, the equivalent of between two and 2.5 years rent-free on a 10-year lease. But with the economic recovery improving conditions the size of incentives was reducing towards more normal levels.”

After a difficult few years for commercial property, Raine & Horne Commercial CEO Angus Raine, who hosted the breakfast at Sydney’s Four Seasons Hotel, said 2010 should present cashed-up buyers with opportunities on the back of an improved economy.

“Clearly indicators such as stronger motor vehicle sales, rising vacancies for skilled workers and better than expected construction activity data for the September quarter are excellent signs for 2010,” Mr Raine said.

Superannuation was another theme set to affect commercial property in 2010, he said.

“The pot for super is growing and I believe commercial property will attract more interest from retail, industry and self-managed super funds in 2010 as it' a more stable asset class than shares.

“Listed and unlisted property trusts are looking for good covenants and long leases, and will be sifting through blue ribbon commercial property opportunities next year.”

Regional towns such as Tamworth, Wagga Wagga and Port Macquarie were also squarely in the sights of commercial property investors in 2010, he said.

“Commercial returns in regional centres such as Tamworth and Wagga are excellent options because of the scarcity of available commercial properties for sale.

"The Tamworth CBD sells in the vicinity of 7% net yields, which is very good for a regional city.

“Regional centres, particularly in NSW, are emerging, so Raine & Horne Commercial is opening new offices in towns such as Tamworth, which will bring in a new level of sophistication to the services commercial agents provide there.”