- Office leasing incentives peaks throughout Australia’s main CBD markets as corporate confidence rises and Sydney emerges from lockdown
- Nationally, the total leasing briefs were at a record level and enquiry volumes at their highest level since 2017, standing at around 402,000sqm
- This resiliency in leasing mood is evident in Sydney’s sublease availability, which had reduced to about 89,000 sqm, a decline of 21 per cent year-on-year
- A total of $4.46 billion in office property moved in Q3 across 31 deals, up 113 per cent from Q3 2020, demonstrating continuing investor appetite for Australian office assets
Office leasing incentives are peaking throughout Australia’s main CBD markets as corporate confidence rises and Sydney emerges from lockdown with the largest amount of leasing inquiries since 2017.
While the recurrence of COVID in Q3 placed Australia’s key markets back on lockdown and the country’s impressive H1 performance on hold, vaccination rates have accelerated the country’s reopening.
According to Joyce Tiong, CBRE’s Head of Office Occupier Research, the Q3 National Office Figures Report highlighted that despite extended lockdowns, the Sydney market, in particular, had remained resilient.
Nationally, the total leasing briefs were at a record level and enquiry volumes at their highest level since 2017, standing at around 402,000sqm.
This resiliency in leasing mood is evident in Sydney’s sublease availability, which had reduced to about 89,000 sqm as of September 2021, a decline of 21 per cent year-on-year.
CBRE’s Pacific Head of Office Leasing Mark Curtain said the agency recorded strong transactional activity across Australia in Q2 and Q3, despite the country’s two major office markets being plunged into lockdown.
“Sydney, in particular, has demonstrated a high level of resilience with tenants clearly looking through the present challenges and focusing on what needs to be done to support their medium to long term office accommodation strategies,” he said.
“A total of 299,911sqm of new deals reached conclusion across the national office market compared with 163,85sqm in the same period last year. Comparatively, in the six months covering Q4 2020 and Q1 2021 there was 286,619sqm of new space transacted.
“While office occupancy rates remain low across the country and in many markets overseas, increasing vaccination rates across Australia are providing a backdrop of stability as we assess the prospects for the office sector in 2022.”
Across the board, company confidence and labour demand rose in September, with office-based industries performing better than predicted.
Except for Adelaide, net face rents were steady, with a quarter-on-quarter increase of two per cent for prime, while incentives grew somewhat in most areas except Perth and Canberra.
Mr Curtain stated that the continuous flight-to-quality trend, as well as the drop in effective rents, will continue to promote demand for high-quality fitted space and assist the improvement in prime vacancies.
CBRE’s research on capital markets shows a revival in investment activity despite lockdowns and a lack of mobility, with transaction volumes on track to approach 2014-18 levels.
According to Flint Davidson, CBRE’s Pacific Head of Capital Markets, Office, a total of $4.46 billion in office property moved in Q3 across 31 deals, up 113 per cent from Q3 2020, demonstrating continuing investor appetite for Australian office assets.
“We have seen a record volume of product offered to the market in Sydney in Q3 and investors have responded by pricing assets at or above book value,” he said.
“There has been very little focus on “the future of office” with buyers finding conviction around the outlook for the occupier markets, driven in part by the exceptional performance of Sydney in H1 and subsequently during lockdown.”
Mr Davidson stated that the projected robust performance of the prime leasing market has resulted in increased interest from capital in prime properties, which has been starved of product due to low volumes and continuous action by co-owners under preemptives.
In Q3, the National Pension Service of South Korea paid $1.2 billion for the Melbourne Quarter skyscraper, while M&G Real Estate paid $578.8 million for half ownership in 200 George Street, Sydney, at a return of 4.1 per cent.