Australian Leasing Market Update | Q1 2018
By all accounts, the most significant change impacting office markets across Australia is tenants’ need for flexibility.
Commercial owners targeting small-to-medium businesses are now finding themselves in competition against local and global coworking providers who offer members flexibility and access to common-use facilities.
The impact of this shift should not be underestimated. Keep an eye out for these three coworking trends to watch this year.
Here’s what’s happening at the local level…
The Adelaide market is starting to look up.
The vacancy rate for A-grade buildings currently sits at 14.7% which is relatively high compared to the rest of the nation. However, options for contiguous A-Grade space (particularly in the 2000 sqm plus range) are limited. This will likely to drive the vacancy rates down over the coming months. Positive job growth, the roll-out of the new 10-gig city project and a number of upcoming lease expiries will help tighten Adelaide’s office vacancy rates.
Net face rent remains stable for A-Grade premises, and incentives have increased slightly to an average of 37%.
For the past few years, A-Grade vacancy rates have been rising in Brisbane due to injection of new stock into the market. It currently sits at around 13%.
Gross effective rents for A-Grade buildings, on the other hand, has been increasing by 2.6% YoY since 2015/16. Currently sitting at $566 per sqm, this trend is forecasted to continue throughout the year and beyond due to strong employment conditions and limited new supply of quality stock.
Incentive levels currently sit at 37%.
In Melbourne, the commercial real estate market has tilted in favour of the landlord.
Net effective rents for A-Grade spaces have jumped 10.5% to $545 per sqm as tenants, large and small, compete for available options. This upward trend shows no signs of slowing down, buoyed by strong leasing activity and healthy employment conditions.
We’ve also seen a dramatic fall in office vacancy due to strong tenant demand, now sitting at an all-time low of 3.3%. This has mostly been fuelled by strong demand for A-Grade space and negative net supply of office stock.
Incentives have also taken a dive, currently sitting at around 29% for A-Grade buildings.
After years of turmoil, Perth’s vacancy rate is finally (slowly) improving, down from 21.1% to 18%.
These positive results are underpinned by tenant migration from city fringe and metro locations, healthy employment levels and an increase in project spending. However, A-Grade stock remains the second highest when it comes to the total space vacant.
Market incentives for A-Grade premises have remained stable, hovering at around 53%. And net face rent currently sits at $560 per sqm.
It seems sky-high Sydney rents have not yet reached their limit. Net effective rents are still trending above 10-year historical averages, currently sitting at $960 per sqm and increasing at an average of 1% every quarter. However, despite this upward trend, more and more owners are valuing long-term leases to future-proof their assets.
The current vacancy rate for A-Grade premises also sits at a historical low of 3.7%. However, vacancy is forecasted to bounce back up to 6% by 2020, amid easing stock withdrawals and positive net supply.
Tenant incentive levels for A-Grade buildings currently sit at around 20%.