Perth property to improve, slowly

By Amanda Saunders

The West Australian Property Lift out, p22

4 May 2011

The commercial property sector will match or out-perform equity markets over the next five years but leasing incentives for the Perth office market remain high, according to property experts.

The 26th Australian Property Institute Property Directions Survey measured the sentiment and expectations of valuers, fund managers, property analysts and property financiers on issues affecting property industry activity.

There was a big jump in confidence that office rents would rise, with 85 per cent of respondents predicting a rise in the next six months, up from just 24 per cent in the previous survey last September.

API WA President Dennis Volk said commercial property in WA was picking up but the rate of improvement remained slow.

“We are seeing what is still a slow upswing at the moment… but confidence is beginning to be rebuilt,” Mr Volk said. “The office and industrial markets in WA are pretty good, particularly with the mining industry buoying these sectors. The retail market remains the area where there is pressure.”

Major commercial sectors were moving into a growth cycle, including the commercial, retail and industrial markets in Sydney and Melbourne, and markets including Perth and Brisbane appeared to be in recovery.

The survey found one-third of respondents believed commercial property performance would at least match equity markets in the next year to three years: 46 per cent believed it was likely to out-perform shares in the next 12 months and 42 per cent believed it was likely or very likely to beat stock markets in the next three years.

Despite the optimism, leasing incentives remain high in office markets, with 65 per cent of respondents reporting incentives of 10-19 per cent as a feature of Perth’s prime office markets.

Other markets were also offering rental inducements, with about 85 per cent of respondents reporting incentives of 20-29 per cent in prime Sydney CBD buildings and 10-19 per cent in Melbourne.

“In Perth, rents have stabilised and… incentive levels have dropped,” Mr Volk said.

“What might have been 20-25 per cent incentive has dropped into the 10-15 per cent range.”