SYDNEY
Despite the current uncertainty in the marketplace, Sydney’s office rents have continued to grow and are expected to keep growing, according to Savills NSW Divisional Director of Office Leasing, Robert Dickins.
Mr Dickins said average A Grade rent in the CBD was $700 per sq m net, representing a 21.7 per cent increase over the past 12 months.
“We expect rental growth to continue over the next 12 months, although growth rates will start to soften but still remain positive through 2010/11,” Mr Dickins said.
According to Savills, as at June 2008, net face rents in the Sydney CBD typically range between $550 a square metre to $850 a sq m net for A Grade buildings, and between $400/sqm and $550 a sqm net for Secondary Grade buildings.
Mr Dickins said most of the space coming on line from the new development cycle is likely to be largely pre-committed judging by current activity levels.
As predicted, North Sydney is benefiting from historically low CBD vacancy, Mr Dickins said and rents had grown by 8.3 per cent over the past 12 months.
“We think the North Sydney market is one to watch especially for rental growth. In recent times it has experienced a surge in interest from tenants who want financially attractive alternatives to the fast increasing rents in the Sydney CBD.”
Current net effective rents in the sub-market typically ranged between of $325 a sq m to $446.875 a sq m net for A Grade buildings, and between $225 a sq m and $272 a sq m for Secondary Grade buildings. The average A Grade rent was $339 a sq m, representing an 8.3 per cent increase in the past 12 months.
QUEENSLAND
Savills Queensland Office Leasing Director Stuart Moody said that Brisbane CBDs tight vacancy of just a little over 1 per cent at July, remained “far too tight” and was the reason rents rose by more than 30 per cent on average in the 12 months to December 2007.
“Seven months later, it is a whole new outlook. Over the next 12 months, the office market will be considerably eased by some 214,000 square metres of new and refurbished office space entering the market,” Mr Moody said.
“Although much of this is pre-committed, there will be some considerable back-fill space available and tenants’ requirements are being reduced in the face of the uncertain economy.
“Once tenants were talking of taking more than they needed so they weren’t caught short again, now they re-thinking their future requirements and pent-up demand, once estimated at around 100,000 sq m may simply not materialise.
“However, the uncertainty coming from the financial crisis that is dampening demand is also delaying the start of proposed new office developments as developers look for ways to equitably finance their projects.
“Out of this mix, the pressure is certainly likely to come off rents which are currently averaging around $700 per sq m for Grade A offices for whole floor mid-rise space, but we think this will come more in the form of higher incentives rather than dramatic rent cuts.
“We think that new office lease space is certainly the value product at the moment and we think that overall, rents will have to rise to reflect the increasing cost of construction and in some cases the increasing cost of financing the development” said Mr Moody.
VICTORIA
Melbourne’s CBD office rents have risen 5.7 per cent in the second quarter of 2008 or 31.2 per cent for the year, to $370 a sq m, according to Savills VIC Divisional Director of Office Leasing, Nicholas Farley.
Net face rents in the Melbourne CBD typically range between $ 350 a square metre to $460 a sq m net for A Grade buildings, and between $ 255 a sq m and $ 355 a sq m net for Secondary Grade buildings.
Mr Farley said that much of the demand had been underpinned by head offices and support services driving Australia’s mining industry, but also by the finance and insurance sectors, typified by major commitments by two of the big four banks in particular.
There have also been relatively higher government requirements than in the past six years, which have been met by the construction of new buildings.
Property and business services demand remains fairly consistent in recent years, Mr Farley said
"Given these levels of demand and only limited supply, we see vacancy levels remaining fairly tight,” Mr Farley said.
SOUTH AUSTRALIA
In South Australia the outlook for office space is healthy with a record take up over the past 12 months and current A grade rentals about $350 a sq m gross, Savills SA Divisional Director of Retail Leasing, Peter Isaksson said.
Currently there are four major tenants looking for space greater than 10, 000 sq m - Origin Energy, (17,000 sq m); Bendigo Adelaide Bank (15,000 sq m), SAPOL (18,000 sq m) and DTEI (26,000 sq m).
WEST AUSTRALIA
Savills WA Divisional Director of Office Leasing, Graham Postma said one of the main concerns being expressed in the market at the moment relates to backfill space that will be created as a result of the pre-commitments secured to date.
“However, our latest figures estimate that approximately 75 per cent of this backfill space will be absorbed by existing tenants in the respective buildings who need to expand,” Mr Postma said.
“There are several developments that have commenced construction or site works that are due for completion during 2009-2012, which will add about 331,500 sq m of accommodation to the CBD market. However, 74 per cent of the new supply has already secured tenants” said Mr Postma.
Existing Premium space is now achieving in excess of $900/m2 net with A grade rates well into the $800’s.
Mr Postma said the rate of rental growth is likely to slow over the next 12 months, but would remain positive.
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