Property vacancy professional development

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Freshman (College 1st year) ・Business ・Harvard

Part 1: Business Paper

In order to arrive at a vacancy rate, all the percentages of units available in a rental house, like a hotel or an apartment complex, which should be vacated or vacated at a certain time, are needed. In fact, it is the exact opposite of the Occupancy Rate, which corresponds to the number of units of non-occupied rental properties.

Reports indicate that the vacancy rate is a part of the vacancy element. The vacancy rate is therefore the rate at which the overall vacancy rate compares to the total marketable stock per square meter, as described in the Glossary of Property Terms. CBD vacancy rates measurements are in percentage terms.

Ken Morrison reports that even though vacancy rates remain high in some centres, there is hardly new office supply coming on the market. About three-quarters of new CBD office supply over a period of the next two and a half years will be in Sydney and Melbourne. Relative to Adelaide, these are the best cities that handle such CBD vacancies. The Adelaide CBD vacancy rate indicates a general highest trend about other towns CBD vacancy rates. In fact, it is the second after Perth, which is the most senior regarding office vacancy rate. Others like the Sydney CBD vacancy rates at 5.9%, Melbourne at 6.5% Brisbane at 3.3 percent and Canberra at 11.4 percent all reports indication of at least 0.3% decrease within the last six months. It is a higher reduction rate compared to the reduction that reports indicate with the cases of Adelaide CBD rates. This trend shows relatively lower decrease within six months into July this year.  CBD Adelaide still has a space of about 57% excess office vacancy, which is higher than the historical mean office, space figures. This fact overrides the unfortunate instance that arises from the six-month decrease in CBD Adelaide vacancy rates.

The grades in Adelaide with highest vacancy rates include; D Grade with 19.5% vacancy rates and C Grade with 18.4%. The rest of the Grades include B Grade at 16.7% vacancy rate, A Grade at 14.1% vacancy rate and Premium grade being the lowest at 10.2%. The factors that influence the Grades or leads to the decreases of such Grades in a particular way is demand for office space, withdrawals, net absorption. For instance, Increase in net absorption is the reason behind high values for C Grade six-month increase and high rate of vacancy rate. On the other hand, a decrease in net absorption results in six months decreases in A Grades and its corresponding low vacancy rate.

Factors that Influence CBD office demand in Adelaide are numerous. Main influencers of CBD office includes the rate of population growth or merely the population pressure and market growth. For enough office space, there is a need for tenants and residents to relocate since the potential office space that accounts for 57% is a private stock of office space. Regarding economic growth, Adelaide faces numerous financial challenges. For more office space, the monetary authorities and policymakers have the opportunity to sell South Australia as the most attractive destination for CBD offices in the country. This factor is significant since as the big companies invest into office space in the CBD, they bring the staff that in turn requires more office space. In this case, increase in investment as an economic growth leads to increases in office space utilisation.

Also influencing the CBD office is the demand for such space. Reports maintain that positive Demand results into double-digit vacancies regarding grades of space. It is a case where withdrawals slightly outstrip supply. The net absorption rate of the office space is a factor to consider. In fact, increase in absorption rates is reported to command a decreased in a particular CBD office grade. Reports further determine that a combination of increases rate of net absorption and extra supply results in high vacancy rates.

The significance of Adelaide CBD office property as an investment opportunity for an international investor is mainly a factor of job-creating potential of this economic activity. It is the logic behind the fact that the Population Council is in a bid to establish a company headquarters that will showcase the South Australian situation of job creation. The investment of CBD offices in Adelaide is vital for the growth of other businesses within the CBD.  The idea is evident when large and multinational companies move into a CBD office space, employs the local and surrounding labour force. Ultimately, The Property Council Research paper indicates that this investment leads to an ecosystem of other smaller businesses around such companies which in turn is an opportunity for employment and economic growth. However, a potential effect on the residents and tenants of the areas where office investments in the CBD occur is apparent. In the Adelaide CBD office investment, there is a possible space that can result in 57% more investment and this area offers residence to some people. When venture into such space becomes useful, there is a potential movement of residents out of such location. The good news is that this appeals to two perspectives. Labor force moves in, and a general population moves out hence the productivity of the region improves. Tenants also might increase the cost of renting a space and requires to upgrade the quality of potential area for an office. Enhanced amenities and services in such spaces are inevitable. It means the benefits of CBD office spaces overrides the drawbacks.

The availability of CBD office spaces is a recipe for an economic transition for the Adelaide financial situation. The potential of the Adelaide office space for the grades such as C, B and D commands double-digit vacancy levels. The notion here is potentially a factor for high office vacancy rate. In fact, this single playing factor makes Adelaide CBD vacancy rates only second to Perth that is the highest in the country.

Part 2: Academic Paper

To understand vacancy rate, it is important to understand a vacancy and vacancy factor. Glossary of property terms defines vacancies as areas, which are physically empty, expressed in meters, and they can be occupied. It also defines vacancy factor as an expression all vacancies as a ratio of total market stock. The ratio derives from the vacancy factor which is total vacant space over the total market stock is the vacancy factor. In other terms, the vacancy rate is the percentage of all vacant spaces that are occupiable. Vacancy rates are essential indicators of economic performance of a state. For this reason, it is important to all aspects affecting the vacancy rate in any given city to understand its economic performance. This paper will focus on the analysis of vacancy rates in Adelaide city.

How the Adelaide CBD vacancy rate compare with other State capital CBD vacancy rates

Vacancy rates help in understanding the areas that are best placed to handle the high demand for vacancies as well as help in identification of regions that have a high demand for office. According to Morison (2017), Adelaide CBD vacancy rate inches down from 16.2% to 16.1%. This vacancy rate is over 30% higher compared to Adelaide historic average. The percentages show that some older stock is transitioning into residential accommodation as the market requires economic and population growth delivered across Australia. Unfortunately, the vacancy rate in the state is higher compared many other cities in the country. For instance, the vacancy rate in Sydney is approximately 7%, Melbourne is about 6.5%, and Brisbane is approximately 15.5% while Canberra is about 12%. The highest vacancy rate is in Perth CBD will is about 22%.

Grades of office space have the highest vacancy rate in the Adelaide CBD

According to Property Council of Australia (2017), the office vacancy rate in Adelaide is a reflection of the transition of the economy. The office spaces are usually categorized into grades, which include premium, and grades A, B, C, D. Overall, all the grades in the city have doubled their vacancy levels; however, there was a reduction in 2017 due to positive demand and withdrawals slightly outstripping supply. Of all the office grades in Adelaide, D grade had the highest vacancy rate (Property Council of Australia, 2017). The 2017 decline in the vacancy rate in this category was a result of the 834sqm of net absorption. The fact that the office vacancy rate is highest in D grade shows that it is least attractive compared to rest of the grades.

Some of the influences on CBD office space demand in Adelaide

One factor that promotes vacancy rate in the in Adelaide’s CBD is centralisation. Also, tenants take advantage of the attractive leasing terms that are offered at the city’s CBD. Unfortunately, the vacancy rates in Adelaide are still high. The high level of vacancy rate in Adelaide shows that it is economic challenges. The number of CBD vacant offices in Adelaide CBD is about 230,000sqm that is 57% higher than the historical averages (Property Council of Australia, 2017). The higher vacancy rate points to the case of transitioning the ageing. The empty stocks that are offered to residential offerings contribute another factor, which in a way chases the residents and tenants to relocate from the city (Property Council of Australia, 2017). The state’s population size also contributes to the high vacancy rate in the city. When population growth is not sustainable, property sector gains more octogenarians and risks losing investors. The State of South Australia does not have resources and strategies that attract foreigners and larger companies to invest in the state.

Significance of Adelaide Office

According to (Adelaide office vacancy reflects the transitioning economy, 2017), the property plays a significant role in the private sector in Australia as it is the largest industry and the biggest employer. It accounts for 10.8 of the economic activity in South Australia and helps in building prosperity in the state. As such, it pays 4.4 billion for salaries and wages. In particular, property pays wages for everyone out six individuals whether indirectly or directly. In South Australia alone, the property is the largest single industry that contributes to 56.6% of revenue for the government.

Therefore, it can be derived that Adelaide can have numerous benefits when vacancy rate is reduced. Making Adelaide home for international investors will solve the high rates of vacancy rates as is the case currently. If the state can attract large companies, they will be able to bring staff and opportunities as well as occupy the CBD office spaces as well as creating ecosystems of smaller business around them. The vacancy rate necessitates the need for policymakers in South Australia to take up strategies that will make the state attractive as an investment destination.

As such, the government in South Australia has taken measure to improve the investment rates in the state. According to Lenaghan (2017), charter Hall plans to start building a $250 million office tower next to the Adelaide GPO. The investment built will refurbish and upgrade the heritage listed telephone exchange building. The head of Charter Hall mentions that the project will not only create a landmark office tower but also deliver economic activity in the heart of Adelaide. According to Newell, Kupke and McGreal (2013), domestic and international investors benefit from strong economic, climatic conditions as well availability of property market fundamentals. In other words, it is impossible for the investors to operate in not only Australia but also in other parts of the globe without commercial property. Commercial property investment plays a huge contribution to the economy of the country. As such, Adelaide’s CBD will enjoy economic growth with international investment in the city.

References

Property Council of Australia (2017). Adelaide office vacancy reflects transitioning economy. [Online]. Available at https://www.propertycouncil.com.au/Web/Content/Media_Release/SA/2017/OMR_Adelaide_Aug.aspx

Lenaghan, N. (2017). Charter Hall starts $250m GPO tower. Commercial Property & Real Estate News.

Newell, G., Kupke, V., & McGreal, S. (2013). The significance of capital flows into the Australian commercial property markets. Pacific Rim Property Research Journal, 19(1), 3-15.

Morrison, K. (2017). Office market report. Australia.

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