The Sydney CBD was the strongest market in the country in terms of effective rental growth in 2016. It also saw the largest amount of supply enter the market since 1992, which shows the strength of demand and momentum on the ground. The main factors behind demand in 2016 were displacement of tenants due to transport and residential developments, organic company growth and centralisation. We also saw occupiers increasingly appreciate the fact that options for space in the CBD are becoming limited. This has and will continue to see deal metrics turn in favour of landlords.
We expect tenant demand and movement to remain strong through the first half of the year. However, we are mindful that occupiers will face fewer relocation options which will likely slow such activity. The gap between incentives, particularly in ‘stay put’ deals and relocation deals, should widen back to pre-GFC levels, as the motivation to move will be driven by business growth, workplace change and centralisation.
Head of Leasing - NSW
+61 2 9220 8721
Q4 is typically the strongest quarter of the year in respect to leasing activity. 2016 was no different with a number of larger requirements (>2,000sqm) for 2017 & 2018 surfacing, whilst the sub 300sqm market continued with enthusiasm and a strong level of enquiry/demand. We anticipate this will continue into 2017 as there are limited opportunities (particularly in North Sydney) for Corporates with large space needs.
North Sydney will start to visualise construction of its largest office building in 100 MOUNT Street, North Sydney. Situated in the commercial heart of North Sydney, on completion 100 MOUNT Street will provide North Sydneys tallest and largest office tower, offering tenants the latest premium technology and environmental initiatives across 41,000sqm.
Technology will be at the forefront of demand in 2017. As will the professional services businesses. There has been a real shift in the last 12-24 months of businesses considering locations which previously may not have been given as much thought; pharmaceutical and technology companies moving to the CBD, tenants in traditional CBD’s relocating to the metropolitan markets to take advantage of cost savings. Whilst this does happen, the speed and number of businesses making such significant relocation decisions appears to be on the rise.
National Director, Leasing - NSW
+61 415 909 871
Extremely tight with good growth due to the lack of vacancy
No, we will not see any relief until the new buildings start coming on line in around 2019. Rents will continue to climb on renewal as tenants are faced with the reality that its renew or move to a business park
Associate Director, Leasing - Parramatta
+61 2 9806 2800
The Sydney Metro market as a whole has performed relatively well during 2016. Net absorption in Macquarie Park totaled 2,300 sqm during 4Q16 (-2,900 sqm for 2016, as a result of withdrawal of stock for residential conversion). A number of tenants have relocated from smaller markets such as Frenchs Forest and also from western Sydney. Net absorption totaled 1,500 sqm in Sydney Olympic Park/Rhodes market during 4Q16 (4,200 sqm over 2016). Headline vacancy rates across the Sydney Metro remained in single digits and this has facilitated rental growth in 2016.
There has been a further tightening of vacancy rates across the Sydney office markets during 2016 and we anticipate this theme to continue over 2017 given tenants’ preference for prime space. Tight vacancy rates, especially in the prime ends of the Sydney Metro, are expected to place further upward pressure on rents and a simultaneous decline in average prime incentives.
Over the last 12 months, tenants from the manufacturing, food services and health care industries were actively leasing space in Macquarie Park. Enquiry for office space during 2017 is anticipated from tenants in the IT, media, healthcare and construction industries. These tenants comprise a sizeable portion of the 130-140 tenants expected to be displaced from the Sydney CBD and North Sydney office markets - as a result of the construction of the Sydney Metro Line. A positive for Macquarie Park and Sydney Olympic Park/Rhodes is their comparatively cheaper rents than the main Sydney office markets. However, the combined lack of contiguous prime space options and new supply (especially in Macquarie Park) may concentrate enquiries from tenants seeking sub 1,000 sqm of office space.
Regional Director - NSW
+61 2 9936 5876
Activity in the 4th Qtr was largely positive, though tenants continue to procrastinate in making decisions as they have numerous options to consider. This coupled with limited time pressure due to most tenants coming to market well before their lease expiry. We see the State Government and the Education sectors continuing to drive demand. We also continue to see limited demand from tenants greater than 1,000sqm so many landlords are now focusing their leasing strategy around smaller suites, subdividing larger floors and building spec fit outs to capture this demand.
Vacancy remains at record high levels seeing continued pressure on rents and incentives. Though we do see light at the end of the tunnel now with expectation that the worst is now behind and our view is that conditions are set improve over the next 18 months slowly but surely.
We see 2017 being very similar to last year with the State Government being the major active player in the market again with several larger departments likely to activate their briefs now that 1 William Street is complete and fully occupied. Smaller occupiers (sub 300sqm) will continue to be the focus of most landlords, now that many have invested large CAP EX into building spec suites to accommodate this demand.
State Government and the Education sectors will continue to drive demand, coupled with smaller tenants of no specific sector.
National DirectorHead of Leasing - QLD
+61 7 3231 1315
We expect that the Brisbane Near city market will experience the same challenges that were faced in 2016. Whilst there was a positive net absorption figure recorded for 2016 on the back of Flight Centre’s development reaching PC, demand has been generally subdued , with no particular sector showing any signs of major growth. The tenant market will continue to gravitate towards well located, good quality product in the near city, however CBD opportunities have created another hurdle for landlords to overcome.
Generally speaking all sectors will focus on their overall occupancy costs, with new workplace design ultimately contributing to a reduced footprint. The State government are still active in both the CBD and Near city markets and we expect that this will continue although with an impending election this year this may change. Education groups made up approximately 7,100sqm of the net absorption from 2016 so with the lower Australian dollar we expect to see some movement in this space.
Associate Director, Office Leasing, Queensland
T: +61 7 3231 1348M: 0402 792 238F: +61 7 3231 1314
Strongly, with decreasing space options for tenants seeking greater than 3,000sqm and occupation in 2017
We will start to see an increasing number of tenants renewing as any alternative option is no better than the stay put scenario.
Demand within Melbourne will continue to be non-sector specific, not dissimilar to 2016.
Head of Leasing - Victoria
+61 3 9672 6531
Agents and landlords would be pleased with the level of activity experienced in the final quarter of 2016, with leasing commitments and any number of new enquiries being activated for new space. Tenant activity in January has been re-activated earlier than usual with a broad range of requirements searching for accommodation throughout 2017.
A further positive for the market is a number of proposed office scheme are gathering momentum with the pre-commitment market showing renewed signs of life.
There are signs of pressure mounting on the availability of stock, in particular in the A grade market, therefore occupiers entering the market in 2017 may find the opportunities in the later half of 2017 are limited. Landlords have recognised this with rents being adjusted upward accordingly. Incentives seem to be maintaining levels as experienced throughout 2016.
Professional services and in particular establishment of Co-Working offices by existing and new players to the market are apparent.
Melbourne Fringe benefits from a broad range of industry sectors with no industry sector being dominant.
Associate Director - Victoria
+61 3 9672 6636
Developers entering the market with permitted sites will have a strong chance in achieving a pre-commitment as existing supply is exhausted.
Director, Office Leasing,Glen Waverley
+61 03 9565 6617
Overall sentiment and market fundamentals in Canberra are positive and improving. Tenants from both the public and private sector were actively leasing space during 2016 for consolidation and expansionary purposes. Tenants in the sub-1,000 sqm cohort was also active in leasing space within the Civic and Barton precincts.
Canberra recorded 14,900 sqm of positive net absorption during 4Q16 and another year of positive net absorption (25,100 sqm). Canberra has only recorded 3 years of negative net absorption since 1986.
Headline vacancy (11.7%) has declined for the 6th consecutive quarter.
The prime vacancy rate declined by 1.1 percentage points to 7.0% over 4Q16. It is now the tightest of all the CBD markets in Australia. Melbourne CBD has the second tightest (7.9%) and Sydney CBD has the third tightest (8.7%).
The combined lack of contiguous prime space options and additions to stock has resulted in a number of tenants vacating the Civic precinct during 2016. However, 2017 will be a year for new supply of office space in the City.
Momentum towards the revitalization of CBD is beginning to gather momentum with a number of key developments including: Constitution Place, London Circuit (33,000 sqm of commercial space) and Civic Quarter, 70 Northbourne Square (18,000 sqm of commercial space).
There are also two full refurbishments (15,500 sqm) currently under way and a third (yet to commence) all expected to come back online in 2017 as quality office accommodation in the City.
Both levels of the public sector, whose tenancies are reaching expiry, will be the likely suspects driving enquiry in 2017. Small legal, accounting and media companies are expected to continue to be active in leasing space during 2017, albeit, less than 1,000 sqm.
Managing DirectorSales and Leasing - ACT
+61 2 6274 9818
Regional DirectorHead of Leasing - WA
+61 8 9483 8423
2016 finished on a high with enquiry strong and a number of transactions reaching a conclusion. Despite a positive finish overall 2016 was subdued, with enquiry volumes remaining below average and the number of new leases completed across the market also below previous years. This level of activity reflects a broader business sentiment with many businesses remaining focused on cost reduction and reluctant to invest.
While demand will remain subdued there is unlikely to be any significant new supply to the market which could see vacancies reduce over 2017. Once a pattern of vacancy reduction emerges we should see incentives start to normalize and perhaps retreat from their current high levels.
Information technology and groups associated with the sector will continue to drive enquiry in 2017. A desire to centralize, upgrade and consolidate will also continue to be a driver. Many businesses are seeking to drive greater efficiency out of their real estate which they are better able to do in better quality buildings that allow higher occupation density.
Head of Leasing - SA
+61 8 8233 8898