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Perth, Brisbane rental growth reflects two-speed economy

RENTAL gaps continue to widen in Australia's two-speed economy, with demand from the resources sector driving up rents in Perth and Brisbane.

Nerida Conisbee, Colliers International national director of research, said all CBD markets but Melbourne had experienced annual rental growth in the first quarter of the year.

Ms Conisbee said mining-driven Perth and Brisbane were leading the way with 19 per cent and 10 per cent year-on-year growth respectively, while Sydney (5 per cent), Adelaide (4 per cent) and Canberra (3.8 per cent) had more moderate growth. Melbourne rents declined by 6 per cent.

''Nationally, our CBD office markets are doing well from a tenant demand perspective. However, there is a widening gap between the performance of mining and non-mining states,'' Ms Conisbee said.

Simon Hunt, Colliers International managing director of office leasing, said while Perth and Brisbane CBDs were both strong performers, the latest figures highlighted potential affordability issues in these markets, particularly for any businesses not linked to mining.

Mr Hunt said Perth's 19 per cent rental growth was a direct result of a lack of available space.


''With the vacancy forecast to remain tight over the next few years, we expect further growth in rents,'' he said.

''It is only a matter of time before we see rents of over $1000 per square metre net face rents in Perth's premium buildings - over $900 per sq m is already being achieved.

''Rents in A-grade buildings are already higher than the asking rents for new buildings on a pre-commitment basis. However, this new supply will not be available until 2014.

''In Brisbane, rental growth is a result of a vacancy rate that has declined quickly and strong net absorption.

''Options for tenants seeking prime office space in the CBD are limited and this has resulted in landlords decreasing incentives and face rents increasing in some instances.''

In relation to Sydney, Mr Hunt said demand was strongest for well-located A-grade buildings that provided a strong value proposition.

''Tenants seeking multiple floors or areas greater than 3000 sq m are restricted in their choice, and there is no new supply in the pipeline for the remainder of 2012,'' he said.

''The message in Melbourne is that face rents have flattened and incentives are again increasing to stimulate demand and to meet competition from sublease space now coming onto the market.''

In Adelaide, it was the A-grade market that experienced the largest decline in vacancy over the past six months.

''Of all the building grades in the CBD, A-grade has had five consecutive periods where vacancy has tightened,'' Mr Hunt said.

''This low vacancy has helped sustain growth in effective rents. Further, incentives developed a two-tiered pattern during 2011, providing further upside to A-grade rental growth.''

Mr Hunt said tenants relocating within Adelaide CBD were able to achieve higher incentives, while those renewing existing tenancies were achieving little to no incentive.

''Despite high vacancies overall in the Canberra market, demand for space in the civic precinct has been strong over the past 12 months, with this market recording a 5.8 per cent vacancy decline. This has led to moderate growth in A-grade rents,'' Mr Hunt said.