Commercial Property Guide’s Asking Price Index (API) continues to reflect an optimistic outlook towards commercial property lease prices, in the major Australian markets and across the main property types. The level of rent growth is down from the peak of late last year. However it still represents a healthy national annual increase of about 7% p.a. in commercial real estate in July 2018. The index measures the change in asking price rents for advertised properties and excludes the automatic annual increases built into most lease contracts.
The rise in commercial rents for all property types across the major capital cities reach a peak rate of increase in November 2017. The annual change in lease prices was about 11%. Since then rent increases have been slowing to a little under 8% in July.
As there is a strong connection between national economic health and commercial property rent expectations, commercial real estate agents are expecting good economic activity to continue but not at quite the same rate as last calendar year.
The Asking Price Index captures the expectation of real estate agents and their clients across the nation’s major markets. The Index has proved to be a good indicator of economic health both nationally and at the capital city level. It is the collective action of many industry professionals across the national commercial property market.
August 2018 Review Highlights
- Commercial Asking Prices for rent increases have peaked although still rising at a healthy 7% in July
- Industrial property lease price rises are very stable at 6% p.a.
- Office lease price increases continue to be the main driver in 2018
- Retail sector rent changes reflect the ongoing impact of online shopping
- Perth is recovering and its commercial rents are no longer decreasing
- The Sydney office sector remains the strongest major market for the past year
1. Property Type Details
Increases in office lease prices remain the commercial property type with the largest upward movement. Office rents were increasing at an annual rate of 16% late last year. While they have moderated during the first half of this year, office rents are still going up at about 12% per annum.
The media coverage of Amazon’s arrival in Australia has abated. However the ongoing and relentless impact of on-line shopping is having a direct impact on retail commercial property. From late last year retail rent increases have been dropping. In November retail rents were increasing at 10%. They are now down to 4% in July – the lowest we’ve seen in the past three years. There is no indication that furthur reduction in annual lease rates will not happen. Commercial Property Guide’s Asking Price Index does not include shopping centres. Retail property is not only sought by traditional merchandisers but a whole range of service providers such as restaurants.
As a contrast, industrial property lease price increases have been very stable for all of this year at about 6% annually. This is still significantly below office rent rises.
2. Major Capital Cities Results
Sydney now Similar to Melbourne and Adelaide
Sydney’s commercial real estate lease price rate of increase has been dropping steadily during 2018. At the start of the year there was a 12% increase, while in July that rate has dropped to 9% - not that much different from Melbourne and Adelaide. Adelaide has followed an upward trajectory in commerial rent increases from 5% in mid-2017 to about 9% in July 2018.
The mild recovery in commercial rent rises in Brisbane during 2017 has come to an end. Since the start of this year commercial rent increases have moderated to their current level of 4% p.a.
Since we’ve started monitoring Perth commercial real estate rents during the year of 2018 we have observed a steady improvement. Annual rents have moved from a -5% decrease 12 months’ ago to a modest positive increase at this point in time. Thing are definitely turning around in Perth.
Closer Look at Sydney
As demonstrated in the graph below, asking price increases in Sydney across the three major property types, Office, Retail and Industrial, have been coming down. Sydney office asking rents are now running at about an 8% annual increase. Industrial and retail rent increases have also come down to their current level of 6% or 7%.
3. About Commercial Property Guide Lease Asking Price Index
Commercial real estate sale and lease asking prices for each suburb, used to compile the Asking Price Index, are available at commercialpropertyguide.com.au. The data is updated each weekend.
The Asking Price Index brings together the collective action of hundreds of commercial real estate agents across Australia. The Index is not just one expert’s opinion as to the future direction of commercial real estate price movements, it is a measurement of the change in sentiment of experienced and expert agents who have made tens of thousands of marketing decisions as to the future direction of commercial property. Each week rental prices per square metre are aggregated for each suburb into regions. Those weekly changes are averaged on a monthly basis. Finally the current rents are compared to those of three months prior and presented as the Asking Price Index.