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Just over one million square metres was leased across Australia’s office markets in 2014 and the year saw a trend away from mining and its associated industries to the services sector. Non-mining sectors took at least 80% of the stock, while 35% of the space leased occurred in the Melbourne market, according to Savills Australia’s latest research. The report found of the 1,050,425 square metres of office space reported leased in CBD and suburban markets nationally, property and business services was the dominant sector leasing 29% of the stock. Other non-mining sectors including finance, government and IT, accounted for a further 50%, while the mining and utilities industry accounted for just 17% of the total. In the CBD markets, which accounted for just under 700,000 square metres, the property and business services sector leased 33% of the stock. The Melbourne market, which is dominated by the service sector, took the majority of space with 35% of the national total. Savills national head of research, Tony Crabb, said the figures underscored the trending shift away from mining and associated industries to the service sector. ‘These are the sort of figures that we expected given the end of the mining investment boom with Melbourne and Sydney leading the way and Perth and Brisbane struggling to adjust to the new status quo,’ he explained. ‘It’s a good news story for Sydney and Melbourne and not so good for Perth and Brisbane, but it’s important to note that this is a cyclical rather than a structural phenomenon and one which the mining states will recover from just as Sydney and Melbourne are now doing,’ he added. Crabb expects vacancy rates to reflect the fluctuating fortunes of the markets with the non-mining states recording minimal change on last year’s figures while Perth and Brisbane struggled with vacancy rates of around 12% and 14%. He pointed out that given the stronger leasing trend, incentives in the Sydney and Melbourne markets were likely to come off post global financial crisis highs, but would remain high in Perth and Brisbane. He also expects some tightening in vacancy rates would also come from withdrawal of stock. ‘We forecast an increase in the amount of occupied space with up to 700,000 square metres of space is expected to be withdrawn, leading to a tightening in the vacancy rate in some CBD’s, especially for prime buildings as upgrade activity accelerates,’ said Crabb. ‘As for incentives, they are mostly paid for by higher face rents. In Sydney, where the incentive has risen from 20% to over 30%, face rents have grown by more than the value of the incentive, this is also the case in Melbourne, Perth and Adelaide with Brisbane the exception,’ he commented. Continue reading →
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