Sydney office market as hot as ever: Savills

Agents say there is strong demand for office space in Sydney. Picture: Nicholas Eagar

In contrast to dire headlines about the state of the residential market, Sydney’s office markets are running hot, with both rents and capital values rising in the last quarter 2018, according to a new analysis by property agency Savills.

Tenants displaced by an infrastructure boom helped drive up net face rents (which don’t include incentives and building costs) in Sydney’s CBD by 9% last year and they broke through the $1000 per sqm mark in September.

“We are seeing a continuation of the natural flow-on effect to Sydney CBD’s fringe markets, with these markets benefiting from greater levels of inquiries as a result of limited space in the CBD,” Savills national director for research Shrabastee Mallik says.

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The agency is forecasting relief for tenants this year, with close to 85,000sqm of net supply set to hit the market as new towers are completed.

With just under 60% of this upcoming stock available, we definitely see some power being transferred to the tenants

The last big influx of space was in 2015 when Lendlease’s International Towers at Barangaroo were finished.

“For the past three years, Sydney has been subject to withdrawals associated with government infrastructure projects, office, residential and hotel conversions,” Mallik says.

Major city projects being undertaken by NSW’s Berejiklian government include several stations for the new Sydney Metro and the Sydney Light Rail project.

Looking ahead, Savills is projecting close to 400,000sqm of office space coming online from 2019 to 2021, as projects by AMP Capital, Investa and Lendlease are completed.

“With just under 60% of this upcoming stock available, we definitely see some power being transferred to the tenants,” she says. While this year is likely to favour landlords, tenants are tipped to get some respite in 2020.

“In 2019, just under 35% of upcoming supply is available, with anecdotal evidence from leasing agents on the ground suggesting most of this will become leased out throughout the remainder of the year.”

For the past three years, Sydney has been subject to withdrawals associated with government infrastructure projects, office, residential and hotel conversions

Savills NSW director for office leasing, Christina Malcolm, says incentives are likely to remain stagnant this year, with marginal increases in rents on a net face basis.

Mallik says that white-collar employment will grow in Sydney, with the city’s suburban office markets also set to benefit as they offer lower rents and better transport links.

Sales of office towers are also expected to remain robust this year, following on from $5.15 billion of skyscrapers sold in the Sydney CBD last year.

“It is clear that prime-grade office assets with strong rental covenants and attractive locational advantages will remain in high demand for the foreseeable future,” she says.

This article originally appeared on www.theaustralian.com.au/property.