Strong demand for office space in Australian property market

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The property market remains attractive relative to other asset classes because of strong demand for office space by resource and finance companies, a report for institutional investors says.

Australia lays claim to one of the most developed markets in the Asia-Pacific region, and return profiles remain attractive relative to other asset classes.The company manages about $40 billion of property assets.

Demand for office space in Brisbane and Perth has been underpinned by high commodity prices, the report says – although it did not give numerical forecasts.And it says that record profits in the banking and insurance industries are driving commercial real estate prices in Sydney and Melbourne.

However, it warns that sliding residential property prices are hurting consumer confidence and thus having a spillover effect by dampening the retail property sector.

LaSalle Asia Pacific regional director David Edwards said, "Owners of shopping arcades and other retail properties may have to work harder to attract customers by adding services or undertaking renovations."

He said, "In the retail sector you need to look for value-add opportunities.More cautious consumption, as a result of the weaker residential markets, has dampened prospects for retail rental growth."

LaSalle's 13th annual report highlights global real estate investment opportunities. It says the outlook for the Asia Pacific is favourable this year and next, helped by the growing economies of the region.

A shortage of modern office space and shopping centres in North Asia, including Japan and China, may bring healthy returns.That contrasts with the potential for an economic slowdown in the US, which may make investment in that country's logistics sector not as attractive as Asia.

Mr Edwards said, "Against the backdrop of strong economic fundamentals, the outlook for real estate performance in Asia Pacific generally is strong for 2007 and 2008."

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