2022-03-30-莱坊-Sydney_CBD_Office_Market_March_2022_9页_5mb

Summary of Sydney CBD Office Market Report, March 2022

Core Content

The Sydney CBD office market is showing signs of recovery, with increased leasing and investment activity following improved economic conditions and a return to office work. The market has been resilient despite disruptions caused by the pandemic and the Omicron outbreak, with demand driven primarily by the tech and financial services sectors.

Main Points

• Positive Market Momentum:

  • There has been a strong rebound in leasing and investment activity, with lease deal volumes exceeding 300,000 sqm in 2021.
  • Prime net effective rents have decreased by 2.9% year-over-year, but the rental gap between prime and secondary markets has widened to 26%.
  • Prime yields have stabilised between 4.25% and 4.75%, while secondary yields remain at 5%.

• Pent-up Demand:

  • The market is benefitting from pent-up demand, with a significant increase in lease deals compared to 2020.
  • The shift to hybrid work models has not diminished demand, as many businesses are still seeking office space, especially in prime locations.
  • Sublease vacancy rates have declined to 1% in January 2022, indicating a recovery in traditional office demand.

• New Supply and Refurbishments:

  • 2021 saw the highest level of completions in five years, with a total of 80,509 sqm added to the office stock base.
  • Major refurbishments include 570 George Street (19,000 sqm), 255 George Street (19,000 sqm), and 33 Alfred Street (32,615 sqm), with some projects set to be completed in 2022 and 2023.
  • New developments such as the Tech Central precinct and Over Station Developments are expected to increase premium grade supply in the future.

• Investment Activity:

  • Investment volumes in Q4 2021 reached $2.2 billion, with annual investment volumes hitting $4.5 billion, more than double the previous year.
  • Offshore investment accounted for 61% of deal volumes in 2021, showing strong international interest in Sydney CBD office assets.
  • Capital values have shown growth, with total returns increasing by 8.9% in Q4 2021, driven by economic recovery and capital value appreciation.

• Future Outlook:

  • The government's encouragement of returning to the office, along with the lifting of restrictions, is expected to boost investment and leasing activity in 2022.
  • Major tenant movements, such as Deloitte and Salesforce relocating, will create backfill vacancies, which may influence market dynamics.
  • The market is expected to continue its recovery, with yields remaining resilient and incentives likely to peak in the short term.

Key Information

• Lease Deals:

  • Lease deal volumes for 2021 exceeded 300,000 sqm, with tech and financial services sectors driving nearly 60% of the activity.
  • Annual net absorption was 33,111 sqm, with a stable vacancy rate of 9.3%.

• Refurbishments and New Supply:

  • Refurbishments accounted for 33,555 sqm added to the stock base in the six months to January 2022.
  • Major refurbishments are expected to continue, with several projects set for completion in 2022 and 2023.

• Investment Activity:

  • Investment volumes in Q4 2021 surged to $2.2 billion, with annual investment hitting $4.5 billion.
  • Offshore investment has increased significantly, with a share of deal volumes rising to 61% in 2021.

• Rental Trends:

  • Prime net face rents remained steady at $1,196/sqm, while secondary rents averaged $875/sqm.
  • Incentives have peaked at 32% for prime and 32.2% for secondary, with a focus on early access and fitout contributions.

• Recent Sales:

  • Notable sales include Darling Quarter (625M), 10 Barrack Street (199M), and others, indicating continued investor interest in the market.

Conclusion

The Sydney CBD office market is on a positive trajectory, with strong demand, new supply, and investment activity contributing to its recovery. The resilience of the market, combined with the government's push for returning to the office, suggests a continued upward trend in the coming months and years.