Sydney CBD offices overtaken by Brisbane

OFFICE occupancy costs in the Perth and Brisbane CBDs are higher than Sydney, whilst Melbourne is ranked outside the global top 30, according to the bi-annual Colliers International Global Office Real Estate Review.

In fact, it is more expensive to rent space in Perth and Brisbane CBD compared to Midtown Manhattan in New York City, where it costs $US700.08 per sqm.

The report shows office markets around the world have picked up the pace in the six months to December 2010 and the global financial crisis is a thing of the past.

The global office market was led by Hong Kong, which remains the most expensive city to lease space. According to Colliers, occupancy costs leapt from $US1738 per sqm in June to $US2,066 per sqm in December.

It was followed by London – West End to $US1,432 per sqm, Tokyo to $1130 per sqm, Paris to $US1,100 per sqm and London – City, rounding out the top five, to $US1,074 per sqm.

In Australia, three cities made it into the top 20, the Perth, Brisbane and Sydney CBDs ranked 12th, 14th and 16th respectively.

National research director Nerida Conisbee said tenants are back in the market with a renewed appetite for office space as evidenced by the higher costs of leasing.

“Mid 2010 marked an inflection point for office markets.

Tenant demand closely follows economic cycles, so it is not surprising that tenants began taking more space at this time. Investor demand also increased as access to finance improved and there was a marked improvement to net absorption,” she added.

A year ago, A Grade space in Perth CBD cost $US714.08 per sqm and six months ago it was $US693.41 per sqm – now it is $US737.76 per sqm.

Brisbane accelerated from outside the top 20 a year ago with $US468.66 per sqm to $US624.84 per sqm as at June 2010 to $US705.79 per sqm.

This edged out Sydney, where it cost $US693.41 per sqm, up from $US600.95 per sqm in June 2010 and $US553.48 in December 2009.

Melbourne came in 31st in the world.

GLOBAL OFFICE OCCUPANCY COSTS – TOP 20 CITIES
	Class A / Prime Space (USD per sqm)
Market	Dec-10	Jun-10	Dec-09
Hong Kong	$2,066.35	$1,737.51	$1,523.31
London – West End	$1,431.82	$1,394.79	$1,500.81
Tokyo	$1,130.21	$1,084.57	$1,089.74
Paris	$1,099.53	$988.34	$895.45
London – City	$1,073.92	$1,013.64	$1,070.58
Rio de Janeiro	$1,019.77	$790.50	$1,029.25
São Paulo	$847.44	$737.33	$789.10
London – Southbank	$807.51	$786.63	$898.57
Singapore	$791.26	$625.17	$578.13
Geneva	$743.79	$598.80	$597.07
Perth	$737.76	$693.41	$714.08
Stockholm	$736.79	$601.81	$625.71
Brisbane	$705.79	$624.84	$468.66
New York – Midtown Manhattan	$700.08	$675.54	$671.35
Sydney	$693.41	$600.95	$553.48
Delhi	$689.11	$630.77	$556.39
London – Docklands	$682.65	$664.89	$783.83
Mumbai	$669.95	$641.96	$636.25
Milan	$668.98	$628.40	$716.45
Ho Chi Minh City	$652.62	$516.67	n/a

Meanwhile the report shows the tightest market globally is in Regina (Canada) at just 1.3%, followed by Rio de Janeiro at 1.6%, Geneva at 2.5%, Sao Paulo at 2.6% and Hong Kong at 3.1%.

At the other end of the spectrum, vacancy is highest in Riyadh (Saudi Arabia) at a staggering 40%, followed by Dubai at 35%, Fairfield (United States) at 26.6%, Budapest at 25.7% and Sofia (Bulgaria) at 25.4%.

Construction levels remain highest by region in Asia Pacific, accounting for 15.4 million sqm or 42% of global construction. By comparison, five years ago just 8.6 million sq m was under construction in same region.

Globally, Melbourne ranked 33rd in total floorspace under construction, whilst Sydney ranked 35th. The city with the most office stock under construction is Shanghai, followed by Moscow.

OFFICE CONSTRUCTION – TOP 20 CITIES
	Under Construction (Million sq m)
Market	Dec-10	Jun-10	Dec-09
Shanghai	3.48	3.44	2.20
Moscow	2.81	2.81	4.04
Ho Chi Minh City	2.70	0.67	n/a
Tokyo	2.15	2.15	1.07
Riyadh	1.72	1.04	n/a
Guangzhou	1.68	2.50	3.22
Mexico City	1.37	1.16	1.05
São Paulo	1.28	1.11	1.50
Dubai	1.00	2.60	2.23
Athens	0.79	0.15	n/a
Beijing	0.79	0.86	0.92
Sofia	0.72	0.67	0.25
Chennai	0.71	0.38	0.20
Singapore	0.58	0.71	0.77
Delhi/Gurgaon/Noida	0.48	0.36	0.14
Jakarta	0.46	0.57	0.68
Saint Petersburg	0.46	0.64	0.32
Paris	0.46	0.70	1.10
Milan	0.46	0.46	n/a
Abu Dhabi	0.40	1.20	1.22

Conisbee said investment sales activity was also up in the second half of 2010 with Sydney CBD recording the highest of office sales in Australia and ranked 10th globally. London Metro recorded the most volume globally.

Melbourne CBD currently has the lowest initial yields in Australia at 7% to rank 47th in the global top 50.

Conisbee said the outlook for 2011 is for continued growth, with Asia Pacific anticipated to remain the engine of growth for the global economy.

“Although economic expansion is expected to be below 2010 levels – due to attempts by China to slow growth, and the impact of higher energy costs – growth in the region is still anticipated to be seen well ahead of that in either the United States or Europe.

“Leasing markets are expected to remain relatively robust, driven by both domestic and multi-national corporations.

“The continued delivery of office space will act as a drag on any material growth in rents; however, a trend towards a higher occupancy costs is expect to hold for most cities in the region with Australia no exception,” she concluded.

Australian Property Journal