Sydney CBD’s total office space stock now at 5.2m sqm

The Quay Quarter Tower recently added 88,000 sqm of premium office space.

The Sydney CBD office property market now has 5.2 million sqm of total stock as of Q2 2022. According to JLL, the completion of Quay Quarter Tower added 88,000 sqm of premium office space in the Core precinct. 33 Alfred Street (31,729 sqm) and 333 Kent Street (10,055 sqm) were withdrawn from stock as they underwent significant refurbishment. 

There is now 256,700 sqm of stock under construction across the CBD, equivalent to 4.9% of total stock.

Here’s more from JLL:

Office supply across metro Sydney expanded over the quarter with two major completions totalling 53,500 sqm. One of the completions was at 8 Parramatta Square, 12-28 Darcy Street, Parramatta (50,000 sqm) and the other at 500-520 Pacific Highway, St Leonards (3,470 sqm).

Occupier demand improves in the CBD, but is mixed in metro Sydney

The Sydney CBD recorded positive net absorption of 2,400 sqm over the quarter. This was driven by the completion of Quay Quarter Tower and strong levels of pre-commitment within the asset. Demand for secondary grade stock was softer over the quarter with negative -2,300 sqm of net absorption. Small tenants (<1,000 sqm) also positively contributed to demand over 1Q22.

Positive net absorption was recorded in 5 out of 10 Sydney’s office markets. Parramatta recorded 19,100 sqm net absorption over the quarter, driven by Westpac relocating to 8 Parramatta Square (20,000 sqm). However, Macquarie Park recorded -3,700 sqm net absorption over the quarter, which was primary driven by Fuji Xerox offering a further 6,600 sqm of sublease space to the market.

Minor rental uplift and yields unchanged amid economic headwinds

Prime effective rents grew in the Sydney CBD over 1Q22, driven by face rental growth (1.6% q-o-q) and a very minor fall in prime incentives to 34.3%. Five of the ten tracked markets in Sydney recorded effective rental increases in the quarter. However, effective rents remain below their 2Q21 levels in all markets with the exception of the Sydney CBD, Macquarie Park, and Sydney North and South.

Prime yields remained unchanged over the quarter in all Sydney markets with a quieter investment market and limited transactions volumes providing limited evidence of changes to equivalent yields.

Outlook: Global economic uncertainty to impact investment sentiment

Positive net absorption is expected over the back half of 2022 in the Sydney CBD, which will be supported by positive pre-leasing activity in new office developments. Prime effective rents are projected to continue rising, supported by face rental uplifts. Prime incentives have stabilised in the CBD.

Whilst high-quality and well-located office assets continues to transact at solid pricing levels, a divergence in the prices of lower-quality office assets has emerged between buyer and vendor expectations. This divergence is likely to continue as investors grapple with economic uncertainty and the rising cost of debt levels.

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