This article is from the Australian Property Journal archive
SYDNEY CBD office vacancies have increased from 10.1% to 11.3% over the past six months, but enquiry levels finished the year above the long-term average.
The Property Council of Australia’s Office Market Report showed Sydney was one of four CBD’s to see a vacancy increase as the national rate lifted from 12.0% to 12.5%.
The second half of 2022 started slowly for the CBD with continuing economic headwinds dragging enquiry, according to CBRE data, and decision making was particularly impacted for 1,000 sqm-plus occupiers.
However, enquiries rebound above the 10-year average in the December quarter.
“Overall, the enquiry for the second half was inconsistent, however, it was very promising to see confidence return late in the year and decisions being made,” said CBRE’s state director, Sydney, Tim Courtnall.
Enquiry in the sub-500sqm bracket remained robust, accounting for approximately 44% of enquiry across the second half of the year, which has been a theme for the last few years.
Courtnall said flight to quality was again a consistent theme in the second half of 2022, with 82% of tenants seeking high quality fitted space.
“High quality fitted suites and whole floors continued to be well received by occupiers, removing the risk around fit-out costs and time delays in completing a new fit-out. The CBD core outperformed with 82% of tenants preferring this location for improved amenities and accessibility for staff post-COVID.”
JLL’s head of office leasing – NSW, Will Hamilton said that whilst the uncertain global economic environment is impacting some decision-making processes, particularly where overseas approvals are required, healthy levels of leasing enquiry from both large and small occupiers are being observed.
“It is expected that high quality assets, particularly with desirable views, will continue to attract solid levels of leasing enquiry over the near term.”
The sublease market remained steady throughout the second half finished with a vacancy of 102,000 sqm. About 20,000 sqm of sublease transactions are expected to complete in the current quarter.
“Although, some are expecting a second wave of sublease space to hit the market, I expect most large organisations have already resolved surplus space and given the costs of subleasing space, I do not expect a significant increase in the quantum of space available,” Courtnall said.
CBRE expects to see the largest number of large transactions – the 3,000 sqm-plus bracket – completed in the first half of 2023 for at least three years.
“From a tenant demand perspective, we have seen some headwinds from the technology sector, however this has been offset with strong demand from the financial and legal sectors,” Courtnall said.
Supply additions in the Sydney CBD will be muted this year. Close to 20,000 sqm of stock is earmarked for completion, which would make for the the lowest year of completions in the CBD since 2012. Hamilton said this will give time to work through the elevated rate of vacancy in the market.
North Sydney options limited
In North Sydney, quality options are becoming increasingly limited and occupiers are being forced to now consider the CBD, in particular the western corridor, such as the rumoured moves of TPG from 177 Pacific Highway and JHA from 101 Miller Street.
1 Denison Street is an example of the limited premium grade options available in North Sydney as it is now 100% occupied. CBRE director, head of office leasing, Stefan Perkowski, said it will not be until the delivery of the Blue & William tower this year and then Victoria Cross in 2025 that North Sydney will once again have new development stock to retain existing North Sydney occupiers and attract new occupiers from the suburban and CBD markets.
“It is expected that the subdued pre-commitment market in 2022 will improve throughout 2023 as business confidence continues to improve and competing options in the CBD become limited.”
In Western Sydney, especially Parramatta and Rhodes, owners ramped up the provision of speculatively fitted out premises in 2022 from small to large suites. Owners with 30 to 40% vacancy increasingly “parked” the refurbishment of premises given the multiple options available for lessees.
“Savvy lessees can often source quality recycled fit-outs in good condition plus a full market incentive. Owners offering brand new speculative options cannot financially compete, given the cost/return, as compared against a recycled option,” said Mick Martin, CBRE director advisory & transaction services – office leasing.
