Bright outlook on office space An appetite for higher-yielding assets among major investors, combined with sustained low unemployment, will underpin growth in office markets, property analysts and landlords predict. Head of property research at Bank of America Merrill Lynch, Simon Garing, said demand for commercial property was strong, riding on the back of low interest rates, which included 10-year government bonds at just 3.4 per cent. That view is reinforced by research from CBRE, which found sales of commercial property upwards of $5 million rose 35 per cent year-on-year to $3.5 billion in the first quarter of 2013. "This momentum is expected to continue into the second quarter with the expected sales near term of Raine Square in Perth and the GE portfolio," Mr Garing said. Last year's $18.2 billion of sales may be difficult to replicate as it included the Charter Hall Office REIT privatisation and the Barangaroo South office tower sales. There will also be a rise in redevelopment of offices, such as Mirvac's 200 George Street, which will add to the supply of higher-quality space in the future, analysts say. At a meeting organised by the Centre for Development in Australia (CEDA) in Sydney on April 4, some speakers forecast improved conditions for the office sector. But chief executive of the Property Council of Australia, Peter Verwer, told the audience that government policies such as doubling the withholding tax on foreign investment - as occurred in the 2012 federal budget - would be a negative for the sector. He believes the Reserve Bank will cut interest rates in the short term, but board members have their fingers ready to push rates higher in the medium term. Mr Verwer said a positive for the sector was that real estate investment trusts (REITs) had bounced back over the past three years after bringing gearing and costs under control and changing management structures. He expects REITs to be more active in the office sector in the coming year. Chief executive of commercial property at Stockland, John Schroder, said in his speech that he expected short to medium weakness in office demand, relative to supply. "Property is not homogenous and nor are the markets in Australia," Mr Schroder said. While office managers are reportedly observing increased levels of inquiry, we expect a challenging year ahead. The deputy head, institutional banking and markets, at the Commonwealth Bank of Australia, Brian McGovern, believes the Australian office market is "in good shape." He said the growth of super funds and low interest rates would result in more cash being allocated to the commercial property sector. "Capital will flow where it's treated best," he said. That's why Australia is in favour.