This article is from the Australian Property Journal archive
BUSINESSES on the hunt for office space in Sydney are overwhelmingly seeking prime grade space, which offer better quality and healthier premises and higher ESG credentials, as landlords and employers try and attract workers to the office.
JLL’s June quarter statistics show the Sydney CBD office market recorded positive net absorption of 2,400 sqm over the period and 29,000 sqm over 2021-22 financial year. Since the start of calendar 2022, prime grade net absorption was 98,900 sqm compared with negative 75,600 sqm for secondary grade assets.
Vacancy has moved sideways over the past 12 months, sitting at 13.0%. Prime vacancy rate sits at 12.94% while secondary vacancy rate is 13.8%.
Solid levels of demand corresponded in 215 public tenant representative briefs in the market, equating to 223,000 sqm in the first half of the year. By comparison, there were 235 briefs in the first half, but they only amounted to 204,000 sqm of space.
An overwhelming 95% of Sydney briefs in the market in the six month period were looking for prime grade space.
“Headline vacancy remains stagnant however quality office space is where the majority of tenant demand lies,” JLL’s head of office leasing – NSW, Will Hamilton said.
“Many organisations are choosing prime grade space to occupy and create better quality and healthier premises. Sustainability is a consideration that is also increasingly driving demand for prime assets. One of the biggest differentiators between prime and secondary stock is strong ESG credentials, and these occupier requirements are widening the gap between assets.
Landlords and businesses are working hard to attract employees back to the office, although the majority of Australians now expect a hybrid working model rather than working exclusively from home or in the office. Office occupancy rates remain well below pre-pandemic levels across all Australian capital cities, with Sydney at 55% and the return to the office has stalled this winter,
Most of the Sydney CBD tenant activity has been concentrated in the CBD core precinct and centred on prime assets, with increased competition and in some cases, occupiers are missing out on their preferred premises, Hamilton said.
JLL brokered 36 deals for prime space in the core, totalling 23,942 sqm, over six months.
Previous historical downturns have led to overall increases in vacancy in Sydney CBD, although prime assets in the CBD core have generally maintained higher levels of demand than other precincts. The pandemic has been no exception.
The core prime vacancy rate had fallen to 5.41% before COVID, which was the lowest rate across all precincts since the Global Financial Crisis. Prior to the GFC, prime core vacancy sat at just 3.07%.
The precinct saw the completion of Quay Quarter during the quarter, which has 89,000 sqm of offices, 95% of which is leased to tenants including Deloitte, Corrs Chambers Westgarth, AMP and others, as well as a flexible workspace managed in partnership with The Work Project. Two new developments in Salesforce Tower and Poly Centre are expected to reach practical completion in current quarter.
At the northern end of the CBD core precinct, revitalisation of Circular Quay is forecast to drive future rental growth.
JLL data shows the Sydney CBD face rents moved higher and prime gross effective rents increased by 2.4% over the quarter, and the firm anticipates face rents will move higher over the second half of 2022.
According to Arealytics, asking face rents for premium grade space in the CBD core precinct are at $1,328 per sqm and A-grade rents $1,099 per sqm. B-grade asking rents are at $871 per sqm and C-grade $784 per sqm.
