Australian Market Snapshot – Q3 2018

October 11, 2018 | Commercial Real Estate

Image of Sydney Harbour Bridge and Sydney CBD on lovely sunny day

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As we bid farewell to Q3, let’s take a look at the latest Australian commercial real estate market trends for 2018.

Sydney

Being one of the most pricey cities in the world, it’s no surprise that Sydney has topped the list for the most expensive Australian city for commercial real estate. In recent times, rent for A-Grade office premises in the Sydney CBD has skyrocketed – expect to pay up to  $1,330/ m2*.

Vacancy rates are in continuous decline, now sitting between 4 and 5%, well below the national average of just under 10%. Incentives also remain relatively low, averaging around 18%.

A shortage of commercial supply in the nation’s largest city looks set to continue for the next few years. But tenants can expect a bit of relief in 2020-2022 when new developments are due to be completed, which will inject approximately 208,000 sqm of office space into the market.

Across town in North Sydney and Parramatta, A-Grade office rental rates are expected to increase further with increased demand. Nonetheless, these locations still offer a viable alternative to the Sydney CBD with more competitive rental rates (about $980 and $670/m2 respectively). Note, Macquarie Park rates are expected to stagnate over the next seven months due to the Epping to Chatswood train line closure.

You can read about some trends affecting Sydney’s CBD market here. Prefer to know a bit more about the Parramatta market? Read our market spotlight.

Bird's eye view of Melbourne CBD, Australia

Melbourne

Office rental rates in the Melbourne CBD have remained stable over the past few months. Currently, A-Grade space in the city centre averages about $745/ m2 while incentives have decreased slightly to an average of 25% – not bad when you compare to the Sydney market. Vacancy rates have fallen to around 5%, half the national average and the tightest that Melbourne has seen in a decade.

Over the next three years, ten projects that are currently under construction in the CBD and Docklands area are expected to inject approximately 410,000 square meters of new office space into the market.

Read more about the trends affecting the Melbourne market here.

Melbourne CBD by the water as the sun sets

Brisbane

Over the past 12 months, rental rates for A-Grade premises have also remained stable in Brisbane’s CBD and inner-city areas. CBD rates currently sit at an average of $688/ m2. Expect to pay circa $575/ m2  in the Brisbane city fringe.

The overall commercial real estate market is slowly recovering, as demand picks up and vacancy rates drop. In comparison to the national average, however, vacancy rates remain high at above 14% in both areas, while the average incentive level is currently at 37%. With the market skewed very much in favour of the tenant and a supply gap until the end of 2019, many tenants are relocating to better buildings or renegotiating the terms of their existing leases while the market is low.

Perth CBD by water taken from a grassy park

Perth

Similar to Brisbane, office rent and stock levels have remained flat during the past financial year in Perth. Average rates for A-Grade CBD office space are sitting at an average of $728 m2, while the vacancy rate is on the higher side at just under 20% in the CBD (double the national average). Tenants can certainly use this to their advantage at the negotiating table.

The average incentive currently sits at approximately 47%.

Regarding stock, there are no new development projects in the pipeline. So, tenants with more than 100 employees are advised to sort out their real estate needs before 2020.

Bird's eye view of Adelaide city

Adelaide 

Adelaide rental rates have seen a slight increase over the past few months, but remain by far the cheapest commercial rental rates that you can find across Australia’s major capital cities. You’ll pay around $487/ m2 in the CBD and just over $400/ m2 on the city fringe.

Vacancy rates are close to triple the national average in the CBD; now at 14.7% and more than double that on the periphery. Nevertheless, this is the lowest rate the Adelaide market has seen in the last three years. Incentive levels have also been decreasing slowly, but remain comparatively high at 33%, which is driving more tenants towards the CBD.

Stock levels are set to be boosted by the end of 2019 with the completion of two development projects, expected to provide 31,000 sqm of new office space.

Read more about trends affecting the Adelaide market, here.

Canberra

Office rental rates have increased slightly over the past few months to $470 m2 for A-Grade office space. And vacancy rates are on a similar level to Adelaide at around 12%.

The level of incentives being offered sits at around 20%, much lower when compared to Adelaide. Stock levels in Canberra have slightly decreased over the past few years.

*all rents mentioned are gross rental rates

Infographic picturing a snapshot of market figures for the Australian commercial real estate market

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The Author

Sophia Bockisch started at Tenant CS as a Research Analyst in 2017 in Singapore for six months. She transferred to the Tenant CS office in Sydney in the second half of 2018, supporting the team as a Consultant.

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