The power of prime in the Core precinct

JLL Research’s 2Q22 statistics on national office markets show the outperformance of prime to secondary office stock in Sydney, reflected in the take up of Prime Grade* space.

The Sydney CBD office market recorded positive net absorption of 2,400 sqm over Q2 and 29,000 sqm over the 2021/22 financial year.

Solid levels of demand corresponded in 215 public tenant representative briefs in the market, equating to 223,000 sqm in H1 2022. By comparison, there were 235 briefs in H1 2021, but only amounting to 204,000 sqm of space.

Vacancy has moved sideways over the past 12 months, sitting at 13.0% in 2Q22. The Prime vacancy rate sits at 12.94% for the quarter while the Secondary vacancy rate is 13.8%.

Since the start of 2022, Sydney CBD prime grade net absorption was 98,900 sqm compared with -75,600 sqm for secondary grade assets.

JLL’s Head of Office Leasing – NSW, Will Hamilton said, “Headline vacancy remains stagnant however quality office space is where the majority of tenant demand lies. The flight to quality trend persists with 95% of Sydney briefs in the market in H1 2022 looking for Prime Grade space.

“Many organisations are choosing Prime Grade space to occupy and create better quality and healthier premises. Sustainability is a consideration that is also increasingly driving demand for prime assets. One of the biggest differentiators between Prime and Secondary stock is strong ESG credentials, and these occupier requirements are widening the gap between assets.

“A large proportion of tenant activity has been concentrated in the CBD Core precinct** and centred on Prime assets, with increased competition and in some cases, occupiers are missing out on their preferred premises. In the first half of 2022, JLL brokered 36 deals for Prime space in the Core, totalling 23,942 sqm,” said Mr Hamilton.

Previous historical downturns have led to overall increases in vacancy in Sydney CBD, however Prime assets in the CBD Core have generally maintained higher levels of demand than other CBD precincts, with the pandemic being no exception.

Prior to the pandemic, the Core Prime vacancy rate fell to 5.41% which was the lowest rate across all precincts since the Global Financial Crisis. Prior to the GFC, Prime Core vacancy was at a record low of 3.07%.

Mr Hamilton said, “Commercial office space in the CBD Core has long been highly sought after and continues to prove its appeal. 2Q22 saw the completion of Quay Quarter, and two new developments in Salesforce Tower and Poly Centre are expected to reach practical completion in 3Q22.

“At the northern end of the CBD Core precinct, Circular Quay is currently undergoing a substantial revitalisation which will drive future rental growth.

“The Sydney CBD was the strongest Australian office market in 2Q22 as face rents move higher and prime gross effective rents increased by 2.4% over the quarter. JLL anticipates face rents will move higher over the second half of 2022,” said Mr Hamilton

*Prime Grade office space includes Premium and A-Grade assets, as defined by the Property Council of Australia. More information on these classifications can be found here.

**The Sydney CBD office market comprises four precincts: South, Midtown, Western Corridor and the Core. View the Property Council of Australia’s precinct boundary maps here.

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