This article is from the Australian Property Journal archive
FACE rents across Australia’s major CBDs remain stable in the face of an uneasy market, as tenants flock to new and higher quality stock.
According to Cushman & Wakefield’s Q3 2022 Office Marketbeat, Sydney, Melbourne, Brisbane and Perth the flight to quality is being fed by new appropriate stock coming online over the quarter.
“Tenants and landlords in Australia’s major CBD office markets are navigating uncertain economic conditions, which is putting locations like Sydney and Melbourne into a relative holding pattern,” said John Sears, head of research at Cushman & Wakefield, Australia and New Zealand.
“We’re seeing the flight to quality among tenants matched by new and higher quality stock coming online in most CBD locations around Australia. The higher incentive levels providing an opportunity for tenants to move up the quality curve, which many are taking.”
At the same time, effective rental growth is being capped by higher incentives country-wide. Though strong net absorption and pre-commitments particularly in prime and A-Grade stock indicates the flight to quality isn’t ready to quit.
“Looking at absorption, enquiry levels and pre-commitments in the higher-grade segments shows us that despite higher inflation, interest rates and economic uncertainty demand held up over Q3, buoyed by employers looking for ways to attract talent, adapt to new ways of working and encourage staff back to the office,” added Sears.
Sydney
Prime rents were up by about 2% over the quarter in the Sydney CBD, reaching an average of $925/sqm per annum.
This increase reflects more than 205,000sqm of new and refurbished space has coming online over 2022 so far, with around 70% of this space pre-committed.
This includes new office space at Quay Quarter Tower, with 91% of the 88,000sqm pre-committed, with 76% of Salesforce Tower’s NLA of 54,000sqm also pre-committed.
Though supply is expected to be limited for 2023, with 71,000sqm of refurbished space anticipated, before a surge of 357,000sqm in 2024.
With the Sydney CBD vacancy rate at 10.1%, prime incentives were still elevated at 34%. This resulted in a boost of around 2% to gross effective rents, reflecting an annual increase of 4.8%.
Melbourne
The office market also held steady in the Melbourne CBD, with many major tenants electing to go for shorter-term extensions, despite what higher annual enquiry levels may suggest.
Prime incentives also stabilised over the quarter at 39%, which is around 2% below 2021 levels, with A-grade unchanged at 40%.
Likewise, prime effective rents were still averaging at $410/sqm pa for the quarter, which is up 5.3% on the same time last year. While B-grade net effective rents were at $335/sqm pa.
With premium and A-grade net face rents stabilised by newer higher quality stock at $725/sqm and $660/sqm pa respectively.
After a combined 550,000sqm of new and refurbished stock over 2020 and 2021, with the 1H21’s 60,000sqm bringing the vacancy rate up to nearly 13%, forecasted new supply in 2022 and beyond is more subdued.
Brisbane
Meanwhile in the Brisbane CBD, gross rents were up across all grades in Q3, though this was offset in large part by higher incentives.
Premium gross face rents were up 5.4% to average $910/sqm pa, A-grade up 5.0% to $740/sqm, and B-grade up 2.3% to $635/sqm.
With prime incentives averaging at 42%, prime gross effective rentals were up by 0.6% over the quarter to $460/sqm, an increase of 3.1% for the year.
Perth
In the Perth CBD, prime net effective rents were up by 1.3% over Q3 to an average of $315/sqm, which was a drop of 0.9% for the year. With premium net effective rent also down 1.9%, averaging $370/sqm pa.
Increases over the quarter were attributed to a rise in premium net face rents, which reached an average of $705/sqm. While A-Grade net face rents were stable at around $590/sqm.
Premium and A-grade net incentives were also stable over the quarter at 48% and 52% respectively.
