Sydney CBD to see 177,600sqm of new office space this year

Thanks to eight office developments currently under construction.

According to data from JLL, eight office developments are set to complete in 2024 in the Sydney CBD, totalling 177,600 sqm of new or refurbished stock. 

“We are forecasting that these completions will put upward pressure on the vacancy rate as new and backfill space is offered to the market,” the analyst said.

Here’s more from JLL:

The Sydney metro markets’ development pipeline is smaller, as increases in costs and elevated vacancy rates have pushed back projects into later years. Speculative office developments in the metro markets will require significant pre-leases to commence construction. We will continue to monitor the financial relativity between the Sydney metro markets and the Sydney CBD.

Positive demand as CBA reabsorbs sublease space

The Sydney CBD recorded positive net absorption of 13,500 sqm over Q1 2024. The positive result was predominantly driven by the Commonwealth Bank of Australia reabsorbing their sublease offering at 35 Tumbalong Boulevard (22,783 sqm).

Positive net absorption was recorded in four out of ten office markets tracked across Sydney. The largest positive result was in the Sydney CBD market (13,500 sqm), followed by Parramatta, which recorded 2,400 sqm of positive net absorption. The largest negative result was in the Sydney Fringe, which recorded negative 28,200 sqm, driven by withdrawal activity totalling 18,900 sqm.

Sydney CBD completions to total 177,600 sqm in 2024

We recorded no completions or withdrawals in the Sydney CBD over Q1 2024. There is currently 315,700 sqm of stock under construction (6.1% of total stock) in the Sydney CBD with completion dates from 2024 to 2027. Three metro OSDs will be completed in 2024 (1 Elizabeth Street, 39 Martin Place and Parkline Place) totalling 140,000 sqm. These three projects have a blended pre-commitment rate of 69%.

We recorded no completions across the Sydney metropolitan markets in Q1 2024. There is 247,000 sqm under construction across Sydney’s nine metropolitan office markets, with the largest development being Victoria Cross, 189 Miller Street (57,100 sqm).

Effective rents remain flat while yields soften

Sydney CBD recorded prime net face rental growth of 0.8% over Q1 2024. Prime incentives increased by a minor amount to average 35.1%. As a result of the increase in incentives, prime net effective rents remained broadly flat over the quarter.

Prime yields softened across all Sydney office markets, with the Sydney CBD yield range softening 25 bps on the upper end and 12 bps on the lower end to now range between 5.25%-6.50%. Some liquidity for prime stock is slowly being unlocked which is providing guidance on pricing for prime assets.

Note: Sydney Office refers to Sydney's CBD office market (all grades).