Rents on the rise in CBD but not suburbia

Commercial office rents are on the rise in most capital city markets as good employment growth and tight supply make affordable space scarce, a new report shows.

According to new research by residential and commercial property firm Colliers International, forecasts for rental growth in Sydney and Melbourne are the most buoyant.

In Melbourne, net effective rents are being driven up by a low vacancy rate of 6.3%.

Average net face rents in Melbourne have hit $633 per square metre for premium space. Melbourne’s net effective rents will surge by 12% a year in 2011 and by 15% a year in 2013.

Simon Hunt, Colliers managing director of office leasing, says white collar employment growth in Sydney is driving growth in the office leasing market.

Gross face rents are at $1,118 for premium space in the heart of the CBD. Net effective rents in the Sydney CBD are expected to increase by 9% in 2012 and 12% in 2013.

The Sydney market has had the strongest absorption of any market in the six months to January, with 62,417 square metres being occupied.

Sydney office rents are expected to move slowly through 2011 as new supply keeps vacancy rates stable, but the following two years will see strong growth in Sydney’s face rents as supply tightens.

Face rents in Perth are expected to increase modestly over 2011 and 2010 due to tighter vacancy, while Adelaide’s prime gross face rents are tipped to remain stable for at least the first quarter of 2011, but could grow by 3% in the second half of the year.

Brisbane is the only office market not expected to see rental growth in 2011 as a result of the floods that swept through large parts of the CBD in January.

Meanwhile, research manager Nick Hoskins of real estate agency Knight Frank says there are no major improvements in suburban office market conditions tipped for 2011.

Hoskins says suburban markets have been shielded from the impact of the global financial crisis, which hurt conditions in the CBD.

According to Hoskins, most suburban areas have low levels of exposure to the financial services sector, and high numbers of tenants in education and health.

According to a new study by recruitment agency Adecco, Melbourne is ranked as the top city for finance professionals and engineers ahead of Sydney, Paris, London and New York.

Melbourne is also popular among temp workers, with the study revealing one in four temp workers rank it as their favourite city to work in.