- Signs of stabilisation emerged in Australia’s major CBD office markets as leasing enquiries and deal volumes increased
- CBRE's Q2 National Office MarketView report found the number of leasing briefs in Sydney reached a new high as tenants took advantage of incentives
- Transaction activity in the office sector continued to grow, with 54 assets exchanged for a total of $4.1 billion in Q2 2021
- As the flight to quality trend raised demand, the CBRE report found the average prime incentive rate in major CBDs climbed 170 basis points
As lease inquiries and transaction volumes rose in Q2 2021, signs of stability were developing in Australia's major CBD office markets.
According to CBRE's Q2 National Office MarketView report, finalised before the recent lockdowns, the number of leasing briefs in Sydney reached a new high as tenants looked to take advantage of increased incentives to lease higher-quality space.
Increased enquiry levels corresponded to a better business climate despite lockdowns causing some short-term disruption, according to Joyce Tiong, CBRE's head of office occupier research.
"For instance, Melbourne’s hard lockdown in May/June unwound the recovery in leasing sentiment recorded over Q1 2021," Ms Tiong said. "However, on balance we’re seeing an ongoing flight to quality trend, which is underpinning higher tenant enquiry levels.
"This improved leasing sentiment and business environment has also been reflected in Sydney’s sublease market, with sublease availability at the end of June standing at 113,000sqm, a sharp decline of 28% quarter on quarter."
Transaction activity in the office sector continued to grow, with 54 assets exchanged for a total of $4.1 billion in Q2 2021.
Total Sydney CBD lease briefs climbed to 295 in H1, with total enquiry volumes of 262,277sqm, according to CBRE Sydney director of office leasing Chris Fisher.
This represented a 64 per cent year-over-year rise in briefs and a 12 per cent year-over-year increase in query volumes.
"While the sub 500sqm size range remained the most active in H1, enquiries from 500-1000sqm and 1000-3000sqm tenants increased substantially, by 47% and 42% respectively from the previous peak in 2019," Mr Fisher said.
"This has transformed into deal flow, with CBRE tracking 49 new deals above 1,000sqm, either signed or at heads of agreement stage in the first half."
Given the current lockdown, Mr Fisher said new enquiries are naturally slowing as restrictions put the brakes on on-site inspections.
"However, in contrast to the when the pandemic hit in March 2020, when most enquiries ground to a halt, tenancy discussions already at the table are continuing to be negotiated and finalise," he said.
While the flight to quality trend raised demand, the CBRE report found the average prime incentive rate in Australia's major CBDs climbed 170 basis points to 33.4 per cent.
The report noted that vacancies remained high and secondary incentives remained relatively steady at 31 per cent.
Prime and secondary asset yields were largely constant, with the exception of Melbourne and Adelaide, where prime yields compressed somewhat.