Increase in office leasing enquires as Sydney and Melbourne emerge from COVID lockdowns

The door is about to reopen on the city office.

As Australia’s two largest cities emerge from their extended COVID-enforced lockdowns, investor interest in CBD office space is ramping up, especially in Sydney, where enquiry levels are at their highest level since 2017.

The upswing mirrors Roy Morgan research which found business confidence had increased 3.1% in September, buoyed by Sydney and Melbourne’s roadmaps out of lockdown.

In a sign of confidence in Australia’s largest office markets ahead of the return of CBD workers, Cushman & Wakefield figures show third quarter investment in each city was $2.5 billion and $1.9 billion respectively, the second strongest Q3 office total on record.

Among the biggest deals were the $1.2 billion sale of Melbourne Quarter Tower to a Korean pension fund, settlement of CIC’s half share of Grosvenor Place in Sydney and Mirvac and M&G Real Estate’s purchase of AMP Capital Wholesale Office Fund’s half share of 200 George Street, Sydney, for $578.5 million.

There’s also been a spike in leasing deals in major office markets nationally.

Colliers has negotiated 679 deals for 356,162 sqm of office space across Australia since the beginning of the year – a 64% increase compared to 2020. Sydney’s CBD led the way with 142 deals, followed by Melbourne’s metro area (121) and CBD (87).

CBRE also reported increased activity in September, with Sydney really feeling the love. The city had just 89,000 sqm of vacant office space, a sharp decline of 21% quarter-on-quarter. Net face rents were stable. Melbourne was more subdued with availability dropping marginally although sublease space remains high at around 187,000 sqm.

Head of office leasing for CBRE, Mark Curtain, said there had been strong activity in quarters two and three, despite the lockdowns. “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.

The Property Council of Australia’s latest office occupancy survey, released before Sydney and Melbourne’s restrictions lifted, showed office occupancy far below pre-COVID levels – 4% for Sydney and 7 % for Melbourne.

CBRE expects this to rapidly increase to around 75 % of pre-COVID levels.

“We are hearing from many of our tenants, and across the broader market, that there is an excitement to get back to the office,” Mirvac’s general manager of leasing, Paul Bezzina said.

“While employees enjoy flexibility, they are also craving the connection, collaboration, and sense of community that a physical office provides.”

Investors confident offices will return

With lockdowns and COVID-induced restrictions easing, investors are looking to the future and seem confident offices will again offer good returns. Picture: realcommercial.com.au/for-sale

REA economist Anne Flaherty said realcommercial.com.au data had shown a “staggering” increase in enquiries and searches to buy offices. There also had been an increase in sales compared to 2020.

“Investors seem definitely more confident about future,” she said.

As for vacancy rates, they have declined overall, except in Sydney and Melbourne, but “as the Colliers data shows, there has been an increase in enquiries for leases”.

“There is strong evidence businesses still want office space.”

The mood was backed by Cushman & Wakefield’s head of research, John Sears.

“Office volumes have continued to step up each quarter this year with activity rebounding ahead of the reopening of the Sydney and Melbourne CBDs,” he said.

“This is a strong vote of confidence in the longer-term strength of Australia’s largest office markets after a volatile 18 months.”