Sydney CBD prime office rents rise 2.1% in Q2

This is the fastest increase since 2017. 

With positive demand indicators seen across the board, the outlook for Australia’s office leasing market is looking up. 

After an encouraging start, Dexus Research says net absorption was relatively modest in FY22. However, the aggregate data belies a pronounced expansion by smaller users (those with leases <1000sqm). 

For example, in Sydney CBD, small users absorbed 45,508sqm of space while larger users gave up 17,685sqm. Larger users were more likely to have had surplus space going into the pandemic and appear more focused on cost control coming out of it. 

Here’s more from Dexus Research:

Physical occupancy rates have been recovering over the past six months and, although slowed down by cold, wet weather, are expected to improve further in the year ahead. Physical occupancy was recorded at 52% in Sydney and 41% in Melbourne. 

Vacancy rates have been reasonably stable over the past year. Office vacancy rates are likely to remain elevated during FY23, constraining rent growth. 

Rising construction costs are an issue for the viability of planned new developments and any delay to major projects could help restore the supply/demand balance in the medium term. 

Rents have performed well over the past quarter. Sydney CBD prime net effective rents grew by 2.1% in Q2 2022, the fastest rate since Q4 2017. Brisbane net effective rents grew by 2.7%. Melbourne and Perth CBDs recorded 0.1% effective rental growth in the quarter.