Although partly driven by stock withdrawals, the Sydney vacancy rate has declined to 7.2% as at January 2013, a figure well down on the cyclical peak of 9.7% recorded in January 2012. Supply is anticipated to be relatively modest over 2013 and 2014, during which time net supply is forecast to average half the historical rate before increasing from the second half of 2015.
The last six months has seen a moderation in tenant demand and with the bulk of leasing enquiry lacking an expansionary element, net absorption is likely to remain subdued over 2013, before a projected improvement in 2014. In conjunction with some imminent supply completions in 2013, this is set to see the vacancy rate move closer to 8% in the coming year before an anticipated decline to 7% in 2014. As a result prime incentives are forecast to remain elevated at an average level of 27.4% in 2013 before a gradual reduction from 2014.
Investment markets are expected to benefit in 2013 from the broadening depth of buyers with offshore investors, wholesale funds and AREITs all active in the market. Coupled with the historically large spread between yields and bond rates, 2013 is expected to see a tightening in core market prime yields, which on average range between 6.25% and 7.25%. The spread from prime to secondary yields, which on average range between 7.75% and 8.75%, is at 12 year highs and continues to offer good relative value for investors prepared to take a position in this part of the market.
Source : Knight Frank