This article is from the Australian Property Journal archive
DESPITE challenging business conditions worldwide, demand for Sydney CBD office space has remained resilient, with tenant enquiries up 25% during the March quarter, according to CBRE.
CBRE’s March quarter figures report also showed the flight to quality has gathered pace, underpinning a quarterly 1.3% increase to $1,356 per sqm in prime net face rents in the city core.
CBRE data highlighted 121 tenant enquiries in the period, up 25% on the December quarter.
Thomas Biglands, CBRE’s NSW research manager, said that increasingly limited space options could lead some occupiers to rethink their decisions to move in the near term.
“Entering 2023, available space is located in a small number of lower tier properties or in disaggregated tranches within higher grade buildings. Given the lack of large tranches of contiguous space in premium buildings in the core, many occupiers may instead look to renew or extend leases in their current space and take advantage of the elevated incentives currently being offered to upgrade their existing fit-outs,” Biglands said.
Minimal stock will enter the market this year after a three-year wave that delivered 450,000 sqm of new office space, including completions at Quay Quarter Tower and Salesforce Tower.
The next waves of supply not due until 2024 and 2027, and this is expected to help the city’s vacancy rate. Property Council of Australia data showed office vacancies increased from 10.1% to 11.3% over the six months to January, as the national average lifted from 12.0% to 12.5%.
“We are experiencing unprecedented demand for new product with strong pre-leasing within the developments to be delivered in 2024. The flight to quality story is more relevant more than ever and this will allow the market to maintain a healthy supply/demand balance for the next few years,” CBRE’s NSW director of office leasing Tim Courtnall said.
Major developments that may be completed from 2025 to 2027 include 55 Pitt Street, at 63,000 sqm, Chifley Tower South, of 50,000 sqm, and Atlassian’s headquarters in the Tech Central precinct, at 57,000 sqm.
Net face rents increased by 1.3% over the quarter and 6.3% year on year, while incentives continued to trend upwards in the March period with CBD core prime incentives sitting at 33.2%.
“Incentives are expected to remain sticky over the next year although we are experiencing some decreases in the premium grade buildings in the core,” Courtnall said, adding that incentives will broadly remain at current levels given increasing constructions costs for new fit-outs and landlords compete to attract occupiers in a highly competitive environment.
