CBD prime yields soften
Low growth expectations and mediocre tenant demand are putting pressure on the Australian office market, says CBRE, with rising vacancy rates driving up prime yields in some capital cities.
Prime yields have softened in Perth and Brisbane in the three months to September, according to CBRE’s Q3 2014 Office MarketView. Perth CBD prime yields rose seven basis points to 7.93 per cent, while secondary yields eased 15 basis points to 9.38 per cent. In Brisbane, prime yields weakened nine basis points to 7.25 per cent, while secondary yields remained stable on the back of a basis point softening since the start of 2013.
According to the report, average Australian CBD prime office yields compressed by just over basis points from September 2012 to September 2014.
Claire Cupitt, CBRE associate director, Research, said the soft growth expectations in some markets were starting to become evident in the pricing environment.
While the extent of the compression in prime office yields to date has been relatively muted compared to other major markets across the world, directionally, pricing trends and, more importantly, rental growth expectations, have been out of sync with market fundamentals,” she said.
“This is now beginning to change with evidence of softening in yields in Brisbane and Perth.”
Josh Cullen, CBRE national director, Capital Markets, said investment demand remained strong for quality office assets at a national level.
“Nationally we are not witnessing the same trend and it has been evident this year in the major east coast markets that core yields have tightened and will continue to strengthen if stock is available,” he said.
“In particular, appetite for assets with residential or future residential potential are being sought after and yielding stronger than expected results.”