CBRE commentary: PCA 2020 Office Market Report

To coincide with the release of the Property Council of Australia’s latest office vacancy data, CBRE’s experts from around the country have summarised the current state of play

06 Feb 2020

To coincide with the release of the Property Council of Australia’s latest office vacancy data, CBRE’s experts from around the country have summarised the current state of play and offered their market-specific expectations for the year ahead.


Ben Martin-Henry, CBRE Associate Director Research

Perth and Canberra emerged as the strongest markets for prime office rental growth as we entered the new decade, both recording double-digit increases in net effective rents in 2019.

The ongoing recovery in the Perth office market is a result of the turnaround in the resource sector, which is driving the take-up of space underpinned by strong growth in white-collar employment. 

Perth’s net effective rents increased by 11.7% last year, while net face rents rose 2.3%, which despite sounding marginal, is a strong result for an office market that has been under intense pressure over the last few years.

Along with Brisbane, Perth is not expected to see any material increases in office supply in 2020, which will allow landlords to continue to push rents and will likely lead to both CBD markets outperforming 2019, underpinned by overall improvements in the Queensland and West Australian economies. 

Canberra recorded 2019’s strongest increase in net face rents, coming in at 11%. This strong growth can be attributed to the completion of the first stage of the Civic Quarter, and landlords repositioning secondary assets.

After a relatively quiet 2019 with weaker leasing activity across its metropolitan markets, Sydney is expected to see further rent stabilisation as occupiers choose to renew rather than look for new space. 

This year’s reduction in net supply will make it even more difficult for tenants to find available contiguous space, as vacancy levels remain very low. Owners will continue to push face rental growth but in order to entice tenants to pay them they will need to increase incentives.

Melbourne’s supply boom will kick in this year, with almost 300,000sqm expected to come into the market in 2020 alone. This will temper any potential rent increases owners push for and see vacancy start to push up marginally. 

Given the strength of the Victorian economy, most notably white-collar employment growth, we are not expecting to see any vacancy blowouts.


Sydney CBD – Jenine Cranston, Senior Director, Office Leasing 

The start of 2020, and indeed the start of the new decade, has seen our clients respond to the catastrophic fires and the challenges they present to the built environment. It has put a particular focus on how they can prepare for climate-related weather events and the associated financial impact.

CBRE’s head of sustainability Emma McMahon has been busy already this year preparing clients and investors who will be responding to the recently-formed taskforce on climate-related financial disclosure. 

This involves identifying exposures and vulnerabilities to physical and transition risks associated with climate change and creating mitigating strategies. 

This ties in with what our leasing team is seeing on a day-to-day basis; our clients and major tenants are, unsurprisingly, more tuned in to this topic than we have seen before. Reflecting the demand for Emma’s advice, clients are keen to create strategies for their assets quickly and effectively.  

This echoes the feedback from our 2019 Occupier Survey, in which a major focus on environmental and social governance was evident. 

It is clear we are at a point of intersection where the evolving needs of clients and tenants are yet to be met in addressing and effectively managing climate-related risk in the built environment. 

We expect to see a great deal more focus on this in 2020 and beyond.

North Sydney – Stefan Perkowski, Director, Office Leasing 

Leasing momentum is building in the North Sydney office market, with a series of recent deals highlighting a genuine reluctance on the part of many long-standing occupiers to consider a move across the bridge.

The likes of Microsoft, Nine Entertainment Corporation and Ooh Media staked their claim on new office space in North Sydney in deals totalling more than 50,000 sqm throughout 2019.

We are working on several additional leases that are expected to set new benchmarks for the North Sydney market, and we’ve seen a groundswell of business confidence. Tenants are prepared to sign up for longer leases and capitalise on opportunities to update their office accommodation.

There is an embedded culture with many occupiers, who like the convenience of being in a lower north shore location, close to schools and providing a good work/life balance.

Very few tenants looked to jump ship in 2019 and relocate to the CBD. Our analysis of last year’s lease deals showed that just 8% of relocating tenants elected to move across the bridge; most moves involved companies expanding into better quality North Sydney buildings.

Microsoft’s recent commitment to the 1 Denison Street project has further legitimised North Sydney as a tech hub. It has already led to an increase in enquiries from this sector, including some businesses currently located in the Sydney CBD.

We expect to see continued interest from major organisations identifying North Sydney as a preferred location to call home this year. Particularly Sydney CBD occupiers that will be attracted to North Sydney’s improving amenity, connectivity and the availability of brand-new office accommodation with up to a 30% parity to CBD rents.

It is quickly becoming the location of choice for organisations to attract and retain talent, as North Sydney transforms from North Sydney to Sydney North.

Melbourne – Caitlin Murdoch, Director, Office Leasing

Off the back of record-low vacancy, we witnessed significant net face rental growth of 6.9% year-on-year in Melbourne in 2019. 

With reduced options in the market, a large number of tenants renewed or moved temporarily into co-working spaces, with the view to testing the market in more favourable times. 

Melbourne’s East End had the tightest vacancy in the CBD and remains a strong preference for banking, government and professional services. Government and infrastructure groups were growing sectors in 2019, and we expect to see growth in professional services in 2020. 

Despite the large volume of new supply starting to come on line, of which the majority is pre-committed, vacancy is predicted to remain below historical averages due to strong occupier demand. 

In the second half of this year we will start seeing some of the backfill trickle into the market with the vacancy forecast to increase to mid-4%. The bulk of it will be delivered in 2021, when we expect net effective rental growth to slow.

Incentives for prime grade assets reduced to approximately 27% in the second half of 2019, and we expect this to move back up to around 30% in line with increases in vacancy.  

The city fringe office market remains of interest for large corporations, with a number of mooted developments fighting for tenants, however we are yet to see a major CBD tenant relocate to a fringe location. 

BHP, Sportsbet and Origin Energy were among the companies that looked closely at relocating to Richmond last year, but ultimately all decided the CBD was still their best option given current market conditions.

Canberra – Zoe Ferrari, State Director, Office Leasing

Canberra led the country in regard to net face rental growth across 2019, with a spike in Q4 following the finalisation of some leasing transactions in new developments. 

The completion of Civic Quarter Stage 1 in the city and a move by landlords to reposition secondary stock helped drive prime rental growth in the Canberra market. 

Prime incentives have remained stable at around 20%, underpinned by Canberra’s low vacancy of sub-2% in this end of the market.

With the majority of new supply in Canberra pre-committed, vacancy rates are forecast to remain low this year, particularly in the prime sector.

Secondary rents rose by 3% in 2019, while incentives fell to 22% and are expected to remain fairly stable throughout 2020.

Brisbane – Chris Butters, State Director, Office Leasing 

Brisbane’s prime office market has begun to tighten, with a pronounced reduction in the number of contiguous banks of prime office accommodation available to lease as of Q1, 2020. CBRE data indicates there’s only three significant banks of available space in the A-Grade market that offer 5,000sqm-plus.

While demand is still patchy, we’ve certainly seen some improvement from the resource sector, with the co-working sector also emerging as a significant net absorber of space last year. The recentralisation of metropolitan tenants to the city is also a trend.

The lack of new supply under construction will present an opportunity for landlords following the completion of 300 George Street and the 12 Creek Street Annex - a 7,000sqm boutique building generating significant interest, which is due to be completed later this month.

Following this, there will be no new supply until the completion of the Midtown Centre in mid-2021 and this 18-month hiatus will help put downward pressure on vacancy rates.

It does feel like we’ll see a new wave of construction begin this year, to help cater for some of the pent-up demand caused by the lack of prime market opportunities. However, we’re unlikely to see any of this new stock completed until 2024 at best and any new construction would have to be heavily pre-committed.

Gold Coast – Nick Selbie, Director, Office Leasing

The Gold Coast’s office precincts have experienced a rise in vacancy rates in the six months to January 2020, but we remain optimistic about the outlook for 2020 based on the Gold Coast’s growing, diversified economy, improved business confidence and major investment in local infrastructure and city centres.

The marginal rise in vacancy can essentially be attributed to a select few operators who have either downsized or introduced underutilised space to the market on a sub-lease basis. 

Overall demand and activity in the A- and B-Grade markets remain consistent with a general flight to quality, retaining competitive rental rates.

Larger, contiguous space of floorplates exceeding 1,000sqm are in short supply, which has helped previously-mooted projects meet pre-commitment requirements, stimulating development activity across several business parks. 

The 5,900sqm Acuity Business Park Building 1 from Alceon Group is due for completion in July with Metricon pre-committed to 4,500sqm. Buildings 2 and 3 will add a further 9,000sqm to the precinct and are currently DA approved. 

On the back of this development being fully built, Robina/Varsity Lakes will for the first time surpass Southport as the largest market by NLA. Approximately 38,000sqm of additional projects are either DA approved or mooted for 2021 onwards.

We also expect to see more new opportunities arise within Economic Development Queensland’s Lumina Health & Knowledge Precinct. 

The 29ha Parklands Priority Development Area was created as part of the Commonwealth Games Village and is the subject of infrastructure investment of approximately $5 billion. It offers more than 15 building-ready development opportunity sites, with capacity of roughly 175,000sqm.

In future development cycles, major occupiers will consider relocations to previously non-traditional locations, which will continue the CBD’s ongoing expansion.

Perth – Andrew Denny, Senior Director, Office Leasing  

The office market is proving to be, together with the resources sector, one of the better performers in Western Australia.

We expect 2020 to be a similar year to 2019 for the CBD market, with the pace of the recovery increasing. 

We are seeing falling vacancies, continuing reductions in incentive levels at the top end of the market and some rent increases. It is likely these incentive reductions will spread to the A-Grade sector of the market. 

Vacancy levels in the Perth CBD are set to fall to around 15.5% by the end of 2020. 

Effective rental growth is expected at around 12.5% for the prime sector of the market, mostly driven by falling incentives. This is likely to be the highest level of growth in the country.

New supply is back on the horizon, with the second tower at Capital Square currently seeking DA approval. If this development proceeds it will provide 20,000 to 30,000sqm of new supply by 2023.

There are a host of potential tenants looking to pre-commit to new developments, including Murdoch University seeking 15,000 sqm. Those lease pre-commitments are likely to be secured this year, with construction on new buildings commencing in 2021.

Adelaide – Andrew Bahr, Senior Director, Office Leasing 

Adelaide’s new generation A-Grade buildings are essentially full, with little to no vacancy or large amounts of contiguous space. As a result, we’ve seen some uplift in face rentals and, more importantly, a significant drop in incentive levels in this market segment. 

There are still a good number of older generation A-Grade buildings in the market with vacancy. Lease terms in those buildings are still equivalent to what they were 12 months ago, with incentives remaining at around 30% to 35%.

However, with no new buildings mooted for development until 2023 at the earliest, aside from 108 Wakefield Street that is currently under construction, conditions are expected to continue to improve for landlords. We’ve already had very good enquiry this year, with demand being even stronger than it was at the end of last year, which bodes well for 2020.

What owners will need to focus on is the two large development briefs in the market; one for a State Government tenant, DPTI, for 25,000sqm and another Commonwealth Government brief for 30,000sqm. 

Both developments are likely to be announced and progressed by the middle of this year at the latest, for delivery in 2023. If they proceed, there’ll be 35,000sqm to 40,000sqm of backfill space physically entering the market when those departments relocate out of existing CBD buildings.

While the market is tightening at present, and we’re experiencing good growth and demand, there’s no room for complacency and owners will need to focus on optimising their existing product and recommitting to their assets in order to stay competitive. 

Overall, though, it’s the best conditions we’ve had in the Adelaide market for a long time. It was a tenant market for a long time, but it’s certainly swung in favour of the landlords, and that will continue through 2020.

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CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at


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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at