The latest Property Council of Australia’s Office Market Report has revealed significant opportunities for businesses in the Sydney CBD office market with over 150,000sqm of supply to be unlocked in 2020.
The Sydney CBD vacancy rate recorded only a slight increase from 3.7 per cent to 3.9 percent mainly due to negative demand as demand rises in areas outside of the CBD.
The expected supply of office space is set to significantly increase by 250,000sqm over the next couple of years especially in the Premium and A Grade segments, responding to positive demand.
Property Council of Australia’s NSW Executive Director Jane Fitzgerald said, "Sydney’s office market has traditionally been very tight, and though it has always been strong, opportunities for larger corporations to move to the Sydney CBD have been limited by a lack of available office space of the right size, scale and standard."
“The government’s decentralisation agenda has also shifted a number of large-scale tenancies to Parramatta, and recent office consolidation in the private sector has resulted in close to 100,000sqm coming off the market, pending refurbishment.
However, with a large pipeline of premium office space expected to enter the market over the next few years, together with the backfill space to become available to the market, there is a possibility that the market will head into an over supplied position.
Over the last 12 months, there has been negative net absorption which has pushed the vacancy rate higher. If these circumstances prevail and absorption remains lower, vacancy will rise and with that will come increase incentives and pressure on rents.
Vacancy analysis:
- Vacancy in the Sydney CBD office market increased from 3.7 percent to 3.9 percent
- This was due to -41,110sqm of net absorption
- Supply additions over the period totalled 70,189sqm while 100,727sqm of space was withdrawn
Premium:
- Vacancy increased from 2.7 percent to 3.6 percent
- This was due to 40,275sqm of supply additions
- Demand was still positive, with 19,286sqm of net absorption recorded
- Withdrawals over the period totalled 9,164sqm
A Grade:
- Vacancy decreased from 3.1 percent to 2.6 percent
- This was due to 19,847sqm of net absorption
- Supply additions totalled 13,952sqm
- 3,865sqm of space was withdrawn
B Grade:
- Vacancy increased from 4.2 percent to 5.2 percent over the period
- This was due to -74,545sqm of net absorption
- Supply additions over the period totalled 15,962sqm while 80,607sqm of space was withdrawn
C Grade:
- Vacancy increased from 6.2 percent to 6.8 percent
- This was due to -5,533sqm of net absorption
- 2,749sqm of space was withdrawn over the period
D Grade:
- Vacancy decreased from 5.9 percent to 3.7 percent
- This was due to 4,342sqm of withdrawals
Future supply:
- 154,424sqm of new stock is due to enter the market in 2020
- This will be followed by 96,548sqm in 2021
- 143,481sqm is due to come online from 2022 onwards
- A total of 149,080sqm of space is mooted
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