Sydney net office absorption drops to -8,900sqm in Q1
Blame it on major occupiers vacating their offices.
The Sydney CBD recorded -8,900sqm of negative net absorption over the quarter, according to data from JLL.
This was driven by a number of large organisations offering sublease space to the market and co-working groups vacating office space. Demand from small tenants was more resilient than larger tenants this quarter, particularly for Grade A stock.
Here’s more from JLL:
Negative net absorption was recorded in 7 out of 10 of Sydney’s office markets. In particular, Parramatta recorded -29,400 sqm net absorption over the quarter, which was largely driven by the relocation of the NSW Government from 10 Valentine Avenue (16,000 sqm) into existing space in Parramatta Square. The market which recorded the largest positive result was the Sydney Fringe (1,700 sqm).
Withdrawals cut supply in 1Q22 while supply pipeline advances
Total stock fell in the Sydney CBD with the withdrawal of 270 Pitt Street (24,400 sqm). There is currently 326,800 sqm of office stock under construction across the Sydney CBD which is equivalent to 6.3% of total stock. The largest projects under construction which have an expected completion date in 2022 are Quay Quarter Tower (88,000 sqm) and Salesforce Tower (54,200 sqm).
Suburban office supply remained largely steady over the quarter with two major completions totalling 6,050 sqm at 74-84 Foveaux Street, Surry Hills and 262 Liverpool Street, Darlinghurst. The largest completion was 74-84 Foveaux Street (4,200 sqm) in the Sydney Fringe, which has a 100% pre-commitment by SafetyCulture.
Uplift in rents after recent falls; prime yields largely narrow
The prime midpoint yield compressed by 13 bps in the Sydney CBD as a result of strong pricing for quality prime grade stock over 1Q22. Prime net effective rents in the CBD increased by 0.7% driven by an uplift in face rents. Prime effective rents also increased in North Sydney, reflecting continued tenant demand for higher-quality office stock.
Prime yields compressed in 6 out of the 10 office markets across Sydney. These markets were the Sydney CBD, Chatswood, Norwest, Sydney Olympic Park/Rhodes, Sydney South and Parramatta. Prime incentives increased across several metro markets which drove a decrease in prime net effective rents, most notably in the Sydney Fringe (-4.5%) and Parramatta (-3.7%).
Outlook: Vacancy and rents expected to improve as markets recover
Sydney CBD vacancy is expected to remain elevated over the year as new supply comes online and total office stock increases. NSW unemployment is projected to trend lower over coming months which could support increased demand for office space across Sydney’s office markets.
Sydney CBD prime net effective rents have reached their cyclical low and are expected to gradually start recovering over 2022. Parramatta is anticipated to have a minor correction in effective rents this year as a result of elevated vacancy in the market. Investment activity will be buoyed by the reopening of borders as well as the continued economic recovery of NSW.
Note: Sydney Office refers to Sydney's CBD office market (all grades).