Building boom to create surplus commercial space, more empty rooms

Nambawan Super commercial development in down town Port Moresby.Pictures by MALUM NALU

Port Moresby and PNG’s tallest building Deloitte Tower…challenged by increasing commercial spaces

Steamships’ commercial property development in Gordon, along the Poreporena Freeway

Steamships’ commercial development in down town Port Moresby

Nambawan Super commercial development in down town Port Moresby

Nasfund has warned of more commercial vacant spaces in light of the current building and construction boom all over Port Moresby.

Joint chief executive officer Rod Mitchell says commercial vacant spaces will grow in 2010 and peak in 2013-2014.

“In early 2009, in the Nasfund newsletter, we stated that ‘Clearly the freeing up of office space in Town, expected early 2010 will signal the beginning of rent stabilisation’,” he said.

“This was stated on the basis that with Harbour City and surrounding Konedobu coming on line, space would naturally free up in town.

“While we do not believe that we will see a dearth of vacant space in town over 2010, we nevertheless are starting to see vacancies in commercial space in Port Moresby.

“This we believe will grow through 2010 and with peak vacancy appearing sometime in 2013-2014.

“The three to five year prognosis for commercial space is increasingly flashing warning signals if all commercial constructions planned to commence over 2010 eventuate.”

Mr Mitchell said there were a number of reasons for raising the alarm bell on commercial construction.

“A number of alternative commercial buildings within close proximity in Gordon’s, Waigani drive and Hohola are now physically underway or near completion,” he said.

“Steamships are building 6,000 sq m in Gordon, there are two three-storey walk-ups in Hohola approximating 3,000 sq m and 4,000 sq m of quality commercial space is being built next to the Westpac building in Waigani drive: The combined space is the equivalent of one Deloitte Tower.

“The Rimbunan Hijau (PNG) Group is powering perhaps the largest long-term retail and commercial development ever seen in PNG – Vision City.

“Taking away the soon-to-be-completed 33,000 sq m ‘Mega Mall’, the commercial element planned over the coming decade is extraordinary with a further 60,000 sq m of office space planned at Vision City, Waigani.

“This will be the equivalent of four times the current commercial space offered at Deloitte Tower!

“In 2010, Nasfund will commence a further 4,600 sq m in town on two sites and Steamships are planning 8,000 -10,000 commercial on the waterfront: Effectively combined, yet another Deloitte Tower in size.

“A further 4,000 sq m in Hunter St will be commissioned in April 2010.

“Uniting Church House, a brilliantly-renovated 2,000 sq m office complex will be commissioned in January – February 2010.

“Harbour City will shortly see a 4,000 sq m commercial development plus three apartments adjacent to the ANZ building commence by a private consortium with two anchor tenants line up (the implication is that they are being cannibalised from an existing building).

“Finally there is a three-storey walk up approved by Physical Planning for POSF at Two-Mile as their new head office (3,000 existing sq m to be freed up at Era Rumana) and 8,000 sq m planned by CHM in Waigani.

Mr Mitchell said with a large amount of commercial space becoming available over 2010-2012, it was hard to see how demand would meet the oversupply.

“However, it will not be until 2013-2014 that we will witness crunch time,” he added.

“That is when it is expected that Exxon will complete its own head office building of 10,000 sq m and vacate exiting temporary to medium-term accommodation already acquired for the LNG start-up.

“In the absence of another major resource project, vacancy rates will most likely increase substantially from 2013.

“The other factor which has to now be considered is the costs of construction which we believe will face strong upward pressure over the next few years.

“The reasons for this are:

• The LNG project will change the face of skilled labour in PNG. In previous discussions on Nasfund’s residential housing construction at Eight – Nine Mile we talked of a very small but emerging middle class. The LNG project we believe will re-rate PNG skilled labour dramatically with demand for local skills (both trades and professional) propelling hourly rates significantly higher. This will lift a whole new group into what we could describe as ‘aspiring middle class’. The re-rating of labour will mean significantly higher costs to business, higher costs of construction as well as bottlenecks within the economy due to skill shortages. The positive outcome however will be a more visible middle class which tends to drive both greater economic diversity as well as social reform including greater demands on elected officials.
• The increased demand for construction materials will also lead to higher prices over the coming few years exacerbated by the easing of the global economic crisis. Imported construction goods will in the absence of an appreciating local exchange rate be expected to increase as world demand picks up; and
• Finally, inflation and expected higher interest rates will also begin to cause on the margin investment plans to falter or completion costs to rise above budget. In the expected soft demand for commercial space combined with higher completion cost for commercial buildings, we will see a fairly difficult period ahead and certainly a case of lowered expectations than the current display of exuberance by market participants.”