Sydney office market hits 20-year rental high

North Sydney’s office market is becoming even more tightly-held.

The race for office space across Sydney is on as the city experiences its greatest spike in market growth in more than 20 years.

Limited supply and strengthening tenant demand has pushed up rental growth, with the office market on track to record its third consecutive quarter and best year since the mid-1990s.

CBRE’s new Australian Office MarketView report found that in the three months to September, prime rents went up by 2%, while secondary rents increased by 8.35%. It has positioned the harbour city to match or exceed pre-GFC rental growth.

Investor splurge: Big office buy-up continues in record run

CBRE advisory and transactions office regional director Andrew Tracey says Sydney tops the nation when it comes to competitive office markets.

“It remains fiercely competitive, underpinned by a real shortage of quality A and B-grade alternatives and strong rental growth,” Tracey says.

Melbourne was the only other office market nationally to record growth during the quarter, according to the findings, with prime rents lifting 0.5% and 4.2% in the year to date. Secondary rents grew by 1.2% and 3.5% respectively.

Tracey says Melbourne’s rental growth has been underpinned by solid employment levels and the absorption of 121,291sqm of space in 2015.

“Rental growth in Melbourne has been assisted by withdrawal and sale of non-core secondary assets for future residential development and business growth,” he says.

Melbourne's CBD office market is set to become even tighter in the coming years.

Melbourne’s CBD office space also performed strongly.

“This is combined with relative rental affordability which has resulted in the city seeing the highest annual net absorption average nationally for the last 10 years.”

Vacancy rates in Melbourne’s office CBD currently sit at 7% but are expected to rise to 8% by the end of the year.

Melbourne is expected to see healthy levels of demand in the medium term, which could see vacancies ease below 6% by 2019.

OTHER CITIES AT A GLANCE

BRISBANE

The Queensland capital’s office market is showing signs of improvement, with net absorption returning to positive take-up in the six months to June.

It has been largely driven by State Government expansion, a modest number of tenant relocations to the CBD and the steady filling of backfill space created by tenant moves to 480 Queen St.

PERTH

A shift is underway in WA’s office leasing market with a rise in the number of tenants relocating from the suburbs – something not seen since before the mining boom.

While rents continued to decline over the quarter, the rate of contraction appears to be slowing.

ADELAIDE

Challenging demand coupled with the completion of two major office refurbishments saw office vacancy rise to 15.8% in July 2016 – the highest level in 15 years.

Rising vacancies have underpinned a decline in rents, with prime rates down 5.1% year on year and secondary rents down 4.4%.