Property and business services firms will be the big drivers of office leasing activity in 2015, according to Savills Research.
The sector, which includes accountants, law firms, real estate firms and construction businesses, accounted for 29 per cent of the1,050,425 square metres of office space reported leased in central business district and suburban markets nationally in 2014.
The mining sector – once the powerhouse of the office leasing market and driven by Perth and Brisbane – fell to just 17 per cent of the market in 2014 with non-mining sectors taking more than 80 per cent of the stock.
Savills national research director Tony Crabb said mining accounted for 20 per cent of the market in 2013 – a year when it was already in decline – and would have been double that at its peak.
“Property and business services are the engine room of office leasing. The other sectors like government, IT and education are fairly steady in terms of space demands,” Mr Crabb told The Australian Financial Review.
“There are big swings in property and business services. They expand and contract, but both are starting to big pick up. It’s what we expected would happen given the low interest rates, it’s just taken time to get there,” he said.
“These firms [in property and business services] have done all the cost cutting they can do. They are operating at their bare bones. If they want to grow, they have to employ people. I think we are at the tipping point.”
In the CBD markets, which made up 70 per cent of all leasing activity, property and business services firms accounted for a third of all leasing deals.
In one of the biggest leasing deals of the year, accounting firm PricewaterhouseCoopers pre-committed to 17,200 square metres at Mirvac’s new office tower on Melbourne’s Southbank while in December, listed financial services group Challenger pre-committed to over 9100 square metres in the $450 million Money Box office tower at 5 Martin Place being jointly developed by DEXUS and Cbus.
Melbourne was the most active market in 2014, accounting for 35 per cent of the space leased during the year, followed by Sydney.
“It’s a good news story for Sydney and Melbourne and not so good for Perth and Brisbane, but it’s important to note that this is a cyclical rather than a structural phenomenon and one which the mining states will recover from, just as Sydney and Melbourne are now doing,” Mr Crabb said.
Mr Crabb said he expected vacancy rates to reflect the fluctuating fortunes of the markets with the non-mining states recording minimal change on last year’s figures while Perth and Brisbane struggled with vacancy rates of about 12 and 14 per cent.
Incentives in the Sydney and Melbourne markets were likely to come off post-GFC highs, he said, but would remain high in Perth and Brisbane.
“As for incentives, they are mostly paid for by higher face rents. In Sydney, where the incentive has risen from 20 to over 30 per cent, face rents have grown by more than the value of the incentive, this is also the case in Melbourne, Perth and Adelaide, with Brisbane the exception,” Mr Crabb said.
Savills expects around 700,000 square metres of space to be withdrawn in 2015.