Sydney locked in battle with Melbourne for top office market

The latest Property Council Office Market Report shows a titanic battle between the Sydney and Melbourne CBDs for Australia’s largest and most in-demand office market.

The Sydney CBD vacancy rate dropped from 4.6 per cent to 4.1 per cent in the six months to January 2019 mainly due to withdrawals from the market. However, the Sydney CBD holds a higher vacancy rate than Melbourne at 3.2 per cent.

There is more space in the pipeline for Sydney from 2019 onwards with over 80,000 square metres entering the market in 2019 and over 100,000 square metres in 2020.

“Competition is good, and Australia has two of the strongest office markets in the Asia Pacific region, however Sydney is losing ground on our southern neighbour in terms of both space in the pipeline and demand,” Property Council of Australia NSW Executive Director Jane Fitzgerald said today.

Key market indicators, Sydney CBD (aggregate)

Grade

Vacancy,

Jan 19 (%)

Vacancy,

Jul 18 (%)

Net absorption, 6 months to

Jan 19 (sqm)

Net absorption, 12 months to

Jan 19 (sqm)

Premium

3.8

5.1

15,356

69,132

A

3.6

4.6

972

-15,799

B

4.5

5.1

-7,319

-9,776

C

4.8

3.2

-4,274

-30,079

D

5.8

1.9

-3,436

-3,035

Total

4.1

4.6

1,299

10,443

 

“On current performance, Melbourne may overtake Sydney as Australia’s largest office market in the next two years or so – the question is what does this mean for Sydney?

“There is still strong demand from foreign investors interested in Sydney and looking for prime office space, and the investment fundamentals are still solid in terms of a growing market with high returns and long leases available.

“Rents do continue to rise and with premium space still tight in our second CBD, Parramatta, many tenants may look to Melbourne as a more affordable option.

 

“The future outlook is good – the completion of new transport projects including the North-West Metro and the South West metro in the years to come will open up new office space and opportunities for investment, and there may be an increasing diversity in demand from sectors such as tech and pharmaceuticals.     

“The key will be creating the right environment for investment: we must get our CBD planning approach right to ensure we cultivate investment and ensure a competitive advantage over other CBDs in the Asia Pacific; attracting the best tenants and a strong pipeline of investment.” 

Media contact:  William Power| M 0429 210 982 |   E wpower@propertycouncil.com.au

 

Office Market Report January 2019

Analysis – Sydney CBD market

 

Headline comments:

  • Sydney CBD vacancy decreased over the period
  • The decrease was mainly due to withdrawals
  • The lower grades of space recorded vacancy increases over the period
  • There is space in the pipeline over the short to medium term

 

Vacancy analysis:

  • Vacancy in the Sydney CBD office market decreased from 4.6 percent to 4.1 percent
  • This was due to 55,147sqm of withdrawals
  • 28,212sqm of space was added over the period
  • Demand was still positive with 1,299sqm of net absorption recorded

 

Premium:

  • Vacancy decreased from 5.1 percent to 3.8 percent
  • This was due to 15,356sqm of net absorption

 

A Grade:

  • Vacancy decreased from 4.6 percent to 3.6 percent
  • This was primarily due to 38,500sqm of withdrawals
  • Supply additions totalled 20,795sqm
  • 972sqm of net absorption was recorded

 

 

B Grade:

  • Vacancy decreased from 5.1 percent to 4.5 percent over the period
  • This was due to 16,232sqm of withdrawals
  • Net absorption over the period was -7,319sqm

 

C Grade:

  • Vacancy increased from 3.2 percent to 4.8 percent
  • This was due to -4,274sqm of net absorption and 2,917sqm of supply additions

 

D Grade:

  • Vacancy increased from 1.9 percent to 5.8 percent
  • This was due to 4,500sqm of supply additions and -3,436sqm of net absorption

 

Future supply:

  • 80,298sqm of new stock is due to enter the market in 2019
  • This will be followed by 101,237sqm in 2020
  • 183,774sqm is due to come online from 2021 onwards
  • A total of 30,000sqm of space is mooted