"Although demand is 50% above the 20-year average, three-quarters of the CBD absorption took place in Perth and Brisbane."
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Which commercial property market you should invest in right now
Every six months, the Property Council of Australia (PCA) conducts a nationwide survey on the state of the office market around the country.
The accompanying graph will give you a quick snapshot of where things currently stand.
However, even the commercial property market has been subject to the influences of the much talked about "two-speed economy".
Across the country, around 290,000 square metres of space was occupied over the six months to June. That means there has now been an above-average absorption for the last three years.
Source: Australian Financial Review
And that has caused the national vacancy rate to fall slightly to 7.8%.
According to PCA chief Peter Verwer, although demand is 50% above the 20-year average, three-quarters of the CBD absorption took place in Perth and Brisbane.
You only need to look at the graph showing rental movements to see the effect the mining sector is having upon tenant demand.
Traditionally, Sydney has always had the highest prime net rentals of all capital cities.
But this changed in 2007, as a result of the mining boom.
What you should observe the lack of underlying depth and fragile nature of the Perth and Brisbane markets following the effects of the GFC, from 2008 to 2011. And only now is Perth beginning to head back up at a cracking pace.
You'll also notice that Sydney's rentals only fell marginally over the same period, due to the rather large proportion of financial sector tenants it houses.
Rentals in Melbourne and Adelaide continued to increase slowly — despite the impact of the GFC.
The state of play
Over the first half of this year, Sydney has seen an improvement in tenant demand, together with significant office space being withdrawn from the market.
Despite the relatively low vacancy rate in Melbourne, tenants seem a little cautious about business conditions. And some are preferring short-term lease extensions to long-term commitments.
The vacancy rate in Perth actually rose over the past six months, with new space coming onto the market. But that will immediately be absorbed due to strong tenant demand.
Over 80,000 square metres of space has been added to the Brisbane market, which also pushed up its vacancy rate; and a further 50,000 square metres is due for completion next year. Even so, tenant demand remains strong.
An uncertain future for the Olympic Dam project and new space coming on stream will help to keep the Adelaide market somewhat subdued.
Meanwhile, Canberra will continue to suffer from federal government cutbacks and the consequent reduction in its public service space requirements.
Bottom line: You be the judge!
The Perth and Brisbane office markets will provide you with one hell of a ride — so long as you know exactly when to get off.
Whereas, Sydney and Melbourne will simply give you predictable growth — with less excitement, but also far less anxiety.
Right now, commercial property is offering something for every investor.