2021-09-14-莱坊-Sydney_CBD_Office_Market_September_2021_9页_5mb

Sydney CBD Office Market Summary - September 2021

Core Content

The Sydney CBD office market has shown resilience and signs of recovery despite the challenges posed by the pandemic and recent lockdowns. The market is experiencing a rebound in leasing activity and investment, driven by improved economic conditions, increased vaccination rates, and a clear path out of lockdowns. The report highlights the balance between supply and demand, the role of incentives, and the ongoing confidence among investors.

Main Points

• Market Recovery: The office market is rebounding, with leasing volumes YTD (August 2021) 125% above the same period in 2020. This is attributed to the early recovery of the economy and the pent-up demand from tenants.

• Leasing Activity:

  • Prime market leasing activity has seen a decline in net effective rents due to increased incentives, averaging 32% with a 10% annual decline.
  • Secondary market incentives also average 32.2%, leading to a 10% decline in net effective rents.
  • Net effective rents in the prime market are now $746/sqm, while in the secondary market it is $531/sqm.

• Supply and Demand:

  • Office completions have reached a 5-year high, with the total office stock base at 5,149,548 sqm.
  • The supply deficit has ended, with significant new developments such as Brookfield Place and 185 Clarence Street coming to market.
  • Pre-committed new developments are expected to reach practical completion by 2022 and 2023, with over 60% commitment rate.

• Investment Activity:

  • Investment volumes have increased significantly, with $2.3 billion in transactions recorded to August 2021, surpassing the same period in 2020.
  • Investors are optimistic about the market's future, with offshore investors increasing their share of deal volumes to 62% in 2021.
  • Major sales include 200 George Street, 1 Bligh Street, and 39 Martin Place, with core market yields ranging from 4.4% to 5.25%.

• Rental Trends:

  • Face rents have remained stable, with prime market face rents at $1,189/sqm and secondary market face rents at $861/sqm.
  • The rental gap between prime and secondary markets has widened to 28%, reflecting the 'flight to quality' trend among tenants.

• Market Indicators:

  • Prime market vacancy rate is 8.9%, secondary market is 9.6%, and total market is 9.2%.
  • Annual net absorption in the prime market is -5,655 sqm, while in the secondary market it is -18,747 sqm.
  • New supply is expected to increase in the coming year, with additional refurbished stock like 570 George Street and 255 George Street likely to enter the market.

Key Information

• Lease Deals:

  • Major lease commitments include HDR at 25 Martin Place, CyberCx at 2 Market Street, and others in various precincts.
  • These deals indicate a shift in tenant preferences towards prime quality spaces with enhanced amenities and safety features.

• Development Pipeline:

  • Significant developments are under construction or pre-committed, including Brookfield Place, 6 Brookfield Place, and 7 Quay Quarter Tower.
  • These developments are expected to be completed by 2022 and 2023, with substantial pre-commitments.

• Yields:

  • Prime yields are stable at 4.25% to 4.75%, while secondary yields range from 4.75% to 5.25%.
  • Yields have recovered from the pandemic-induced compression, and are expected to gradually tighten in 2022.

• Pent-up Demand:

  • Tenants are still active in making decisions on office space, whether it's upsizing, downsizing, or adopting hybrid models.
  • The market is expected to see a resurgence in activity once lockdowns ease and vaccinations rates increase.

• Investor Confidence:

  • Investors are showing renewed confidence in the Sydney office market, with a significant increase in transaction volumes.
  • Offshore investors are stepping up their exposure, often partnering with domestic groups to navigate travel restrictions.

• Market Outlook:

  • The market is expected to recover in the long-term, with the potential for further growth in the coming years.
  • The report emphasizes the importance of the 'flight to quality' and the impact of new developments on future demand.

Conclusion

Despite the short-term challenges and volatility, the Sydney CBD office market is demonstrating resilience and signs of recovery. The rebound in leasing activity and investment, coupled with the stabilization of yields and the introduction of new supply, suggests that the market is well-positioned for long-term growth. Investors and tenants are showing renewed confidence, and the market is expected to continue its recovery trajectory as the economy and the office sector adapt to the post-pandemic environment.