Sydney, 17 November 2015- An estimated 350,000sqm of new supply will enter Australian CBD office markets in the second half of the year, a new high for a half year period.
The record levels will comprise mostly A-grade buildings, continuing the trend of better quality office stock throughout the CBDs. The markets set to record high levels of supply over the next 18 months– Sydney, Brisbane and Perth – will receive the biggest improvement in stock quality over the medium term outlook.
According to CBRE’s latest Office MarketView, the trend of improving accommodation is down to several contributing factors including evolving tenant preferences, productivity gains, environmental considerations and residential conversions.
Stephen McNabb, CBRE’s Head of Research, said that due to the rise in incentives, real effective rents are markedly lower than real face rents, which sit at around the same level as in 2000.
“Coupled with the fact that on average the standard of accommodation has improved, this means new tenants haven’t been getting this much value for money since 2004,” Mr McNabb said.
CBRE recorded office leasing of around 632,000sqm for the first three quarters of 2015, comprising 545 leasing deals. This activity is largely consistent with improvement in economic activity generated by the office sector in the first half of the year.
In Sydney, tenant demand has surprised on the upside. Take-up remained strong in the sub-1,000sqm market with limited options available. The IT sector was the main contributor, with a number of large transactions during the quarter from both new and existing entrants. The finance and insurance sector also made a solid recovery, accounting for 59% of leasing transactions in the past 12 months.
CBRE’s Andrew Tracey, Regional Director, Office Services, said that vacancy in Sydney is at its lowest point in six years and rental growth was evident in Q3 for the second consecutive quarter.
“Strong levels of net absorption in the first half of 2015 saw vacancy fall to 6.3% in June, compared to 8.4% from 12 months earlier. Given stronger gains in tenant demand and increased permanent stock withdrawal, the vacancy outlook over the next three years is lower than initially expected,” Mr Tracey said.
In Melbourne, tenant migration from the suburban markets has boosted net absorption in the CBD. The report forecasts this market will record the highest level of net absorption amongst CBD markets in 2015 and the highest annual level seen in five years. Absorption is forecast to remain positive over the coming years.
Demand conditions in Brisbane and Perth remain week, while net absorption in both Adelaide and Canberra turned positive in the first half of the year.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.