Dexus Research released their 2017 second quarter Australian Real Estate Review, with the focus on the positive outlook for office markets.
Dexus General Manager of Research Peter Studley said investors in office buildings are benefiting from a strong start to 2017, with double digit rental growth in Sydney and Melbourne.
“Sydney CBD recorded just over 28% growth in net effective rents over the past year, the fastest pace of growth in seven years and most of the eastern seaboard office markets recorded solid increase in rents," he said,
“The gains are being driven by a growing shortage of office space as vacancy rates fall below average."
According to Dexus' report, limited net supply in 2017-2018 for Melbourne and Sydney should lead to further rental growth in the short term.
"Office markets are historically cyclical," the report said.
"This period of strong rental growth and low yields is likely to encourage construction of new buildings, both in the CBD and in the metropolitan markets."
Mr Studley said it was pleasing to see that the growth phase is now being realised.
"Confidence in office markets was based on the knowledge that companies, particularly small companies, were hiring and that withdrawals of older office buildings would help offset new supply," he said.
Occupier demand was also positive in all four major CBDs in the first quarter of 2017, including in Brisbane and Perth.
“With the next supply cycle several years off, the short term outlook is buoyant, particularly in Sydney and Melbourne, Australia’s largest office markets," Mr Studley said.
In the industrial market, Dexus found that Sydney's strength after two years of solid industrial demand was starting to flow through to rental growth, with signs of rent growth in all key precincts.
"The outlook is for industrial activity to remain solid nationally, supported by infrastructure investment and population growth," the report said.
Dexus found that within the retail market, Australia's domestic retailers are faced with a tough competitive environment due to competition with new international brick-and-mortar stores, continued growth in the online retailing sector and overall patchy (albeit positive) sales growth.
"Household spending is being challenged by weak wage growth and the prospect of an easing housing market," the report said.
"However, solid population growth and low interest rates should continue to provide some underlying support to retail sales."Australia's transactions saw its lowest activity in five years during 2017's first quarter, with sharp pricing and limited stock for sale constraining activity while settlements were still pending.
According to the report, the total transaction volume for the March quarter was $3.21 billion, with transactions still dominated by the office sector.