Sydney, Melbourne lead office market recovery: JLL research

Sydney, Melbourne lead office market recovery: JLL research
Sydney, Melbourne lead office market recovery: JLL research

Sydney and Melbourne continue to lead the office market recovery in Australia, according to latest figures from JLL Research. 

Statistics on national office markets for the fourth quarter of 2015 showed positive net absorption of 26,700 sqm over the quarter across CBD office markets and 296,900 sqm over the past 12 months. 

The net absorption for 2015 was nearly 100,000 sqm higher than the 20 year average for CBD office markets (197,000 sqm).

“Activity in the office sector is intrinsically linked to the health of the labour market. While the rate of hiring varied by state and industry sector, overall headcount growth was firm in 2015,” said JLL’s head of Strategic Research, Australia, Andrew Ballantyne.

“Employment growth was strongest in NSW and VIC and this was reflected in above trend net absorption results for the Sydney and Melbourne CBDs in 2015.”

Brisbane CBD, however, surprised on the upside with a sharp reduction in sub-lease availability over 2015, he added.

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Sydney, Melbourne lead office market recovery: JLL research


The availability of backfill space from relocation to new development stock, however, resulted in the national CBD office market vacancy rate rising to 12.6% from 12% in the previous quarter. 

The Sydney CBD recorded positive net absorption of 24,400 sqm in 4Q15 and 144,800 sqm over the past 12 months. However, vacancy rate rose marginally by 0.1 percentage point to 7.8% in 4Q15 from the previous quarter.

“The recovery in the Sydney CBD office market continues to be led by the technology sector. Expedia and Dropbox committed to new space and expanded their occupational footprint in the Sydney CBD in Q4,” JLL’s head of Office Leasing, Australia, Tim O’Connor said.

He said the trend of new entrants into Sydney would remain a relevant theme in 2016 and the announcement of new infrastructure projects by the NSW government was a positive for the medium-term economic outlook.

“As the demand recovery across Sydney’s office markets crystallises, the number of genuine options for tenants has diminished and competition for space has translated into positive effective rental growth.”

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Sydney, Melbourne lead office market recovery: JLL research

Prime gross effective rents in the Sydney CBD increased by 3.9% in Q4 and by 9.5% over 2015. Rental growth was not limited to the CBD with the Sydney Fringe (+12.2%), North Sydney (+6.6%) and Parramatta (+6.6%) all recording above trend effective rental growth in 2015.

The Melbourne CBD recorded 3,700 sqm of positive net absorption in 4Q15 and 128,500 sqm over the past 12 months. As a result, the vacancy rate compressed from 10.1% in Q3 to 10% at the end of 2015. 

“The relatively flat net absorption result masked the divergence in prime and secondary vacancy rates. The availability of good quality space has allowed companies to upgrade the quality of their premises and the prime grade vacancy rate moved below 10%,” O’Connor said.

While office market net absorption surprised on the upside in Sydney and Melbourne over the past 12 months, only four of the six monitored CBD office markets recorded positive net absorption over 2015. 

The Brisbane CBD was one of the markets to perform above expectations and recorded four successive quarters of positive net absorption in 2015. Net absorption in Q4 came in at 11,300 sqm and was 26,600 sqm over 2015. 

“While leasing volumes remain thin in Brisbane, a reduction in sub-lease availability from 3.28% of total stock in 2014 to 1.44% in 2015 provides tangible evidence that companies are willing to retain excess space in anticipation of modest headcount growth in the short-term,” Ballantyne said.

The Perth CBD recorded positive net absorption of 600 sqm in 4Q15. However, net absorption was negative 19,100 sqm over 2015.

“It is too early to confidently call the trough in the Perth CBD office leasing market. However, the rate of contraction has slowed significantly over 2015 and the physical market will show further signs of stabilisation in 2016,” Ballantyne said.

Canberra recorded positive net absorption of 18,000 sqm over 2015. As a result, Canberra’s vacancy rate has trended down over 2015 and finished the year at 14.1%.

In 4Q15, the Adelaide CBD recorded net absorption of -11,300 sqm and vacancy increased to 16.7% over the quarter. The vacancy rate in Adelaide is now at the highest level since 1999.

“The easing of leasing incentives we recorded in Sydney over the latter part of 2015 will become a more pronounced theme in 2016. However, vacancy pressures in Perth, Adelaide and Brisbane will require owners to commit capital expenditure to reposition assets to ensure that they remain relevant in competitive leasing markets,” concluded O’Connor.

Sydney Office Market


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