It’s a commercial tenant’s market, but not for long

Time could be running out for commercial property tenants to secure a great deal on their lease, with rents set to spike and incentives expected to dive in some cities.

It’s still a tenant’s market, Colliers national research director Nerida Conisbee says, but that could be about to change in Melbourne and Sydney.

Lease incentives are at historically high levels – as much as 30% in most Australian capital cities – though Conisbee says they will likely drop away in the country’s two biggest markets later this year as vacancy rates start to fall.

“That (incentive) is probably not going to change in Brisbane, Perth and Adelaide but is likely to start to change in Sydney and Melbourne,” she says.

In Sydney and Melbourne we know that tenant demand is improving, and as a result we think that the really favourable conditions for tenants will start to change towards the end of this year

“In our view there’s a bit of a sense of urgency that if you’re a tenant in Melbourne or Sydney you probably should be trying to take advantage of the really good deals that are in the market.”

“In Sydney and Melbourne we know that tenant demand is improving, and as a result we think that the really favourable conditions for tenants will start to change towards the end of this year.”

Savills national head of research Tony Crabb agrees, but says the market shift could already be upon us.

“Vacancy rates will be released in early August and what we would expect to see is a fall in the vacancy rates in Melbourne and Sydney in particular,” Crabb says.

Industrial properties could be among the best-performing in the coming months

“That would just confirm the ongoing turnaround in the fortunes of those markets.”

But Conisbee warns that tenants in other capital cities may be able to lock away a better deal if they’re prepared to wait.

“In Brisbane and Perth there’s still quite a long way to go, it may get (better for leasers) or it may stabilise. Tenants could do better if they wait in those markets because we think incentives will either continue to increase or remain stable.”

Rental yields will continue to improve for landlords and investors, particularly in Melbourne and Sydney, with industrial properties expected to be among the best-performing, Conisbee says.

Her comments come after Singaporean sovereign fund giant GIC announced in March that it would sell as much as $1 billion of its industrial real estate portfolio, which when sold could provide a barometer for other investors.

“When that hits the market, the yield that those assets achieve will be really interesting to see,” Conisbee says.