EVERY INVESTOR would like to be in a position to pick the top and bottom of each Cycle, when it comes to commercial property.
And if you had followed things closely during last century, you would know forecasting this used to be relatively straightforward – with all the various Office markets following a fairly predictable sequence, as shown below.
You see, last century all capital cities seem to operate “in sync”, as far as their CBD Office markets were concerned.
However, everything changed with the Global Financial Crisis. Right now, it would appear to be a two-speed economy – with only the Sydney and Melbourne markets presently in an Expansion Phase.
On the other hand, Brisbane and Adelaide are starting to emerge from a Recovery Phase. And Perth has only recently moved out of a Recession Phase.
Anyway, you will find that is probably better explained by the respective vacancy levels depicted in the next graph. Hopefully, this will help give you a good understanding of where each CBD office market currently sits within the present Cycle.
While the Sydney and Melbourne vacancies are approaching historic lows, you’ll notice there is some new buildings coming onto the Melbourne market – to quickly bring it back towards being a “balanced” situation. And that will help it progress through this Expansion Phase in a more orderly fashion.
From earlier articles, you would be aware that a CBD office market is “in balance”, when it has between a 6% and 8% vacancy rate.
As you can see … the Adelaide, Brisbane and Perth markets are still expected to remain well above that range by 2021. Therefore, even though these three markets will gradually improve, you’re unlikely to enjoy any extensive rental and capital growth for a while.
Bottom Line: For the time being, you’re probably better to focus your attention on the Sydney and Melbourne markets. Although you may find Melbourne will offer you better value, together with a more predictable future outcome.