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Optimism returns to office property sector

24/10/2008

Signs of optimism have emerged in the office property market, with experts tipping solid medium-term growth in Perth and Adelaide.

The GDI Property Group, a high performance property investment manager, predicts growth in the office sector once the current episode of "overdone pessimism" ends, because Australia remains poised to benefit from the commodities boom, fed by demand from China and India.

"National income growth remains strong, underpinned by profits from the mining boom," said managing director Steve Gillard.

"We expect the terms of trade to improve significantly during 2009-11 and total business investment activity is expected to remain high."

These factors feed into demand for office space, especially in Australian capital cities and high-growth regional areas, he added.

Both Perth and Adelaide are tipped to be the standout performers, as they both possess strong fundamentals in their respective office markets, with growing rents and demand still strong.

Melbourne suburbs, regional Queensland and Tasmania were also good future bets, Gillard said.

He was more cautious about "overvalued" Sydney suburbs, the Melbourne CBD and the Gold Coast - due to the high level of supply currently under construction and slow demand - and Brisbane, due to its potential to oversupply the market.

"There is great value in certain office markets, as vacancy compression exists and tenant demand remains strong," Gillard said.

"Property yields have been soft, but they are stable. Investor activity is slowly returning after a quiet first half 2008, with astute privates buying, while institutions are generally out of the market."

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