Tim Molchanoff, Cushman & Wakefield’s Head of Office Leasing, Australia and New Zealand said from a National perspective, the Flight to Quality story remains a hot topic for the national leasing market.
“As was visible in 2022, office leasing activity across Australia in 2023 will be marked by transitions. Shifts in ways of working, the economic cycle and financial markets will all play a role in shaping tenant demand.
“The big-ticket objectives last year of getting people back to the office and attracting talent in a tight labour market aren’t abating. This is now leading occupiers, particularly smaller organisations, to pursue quality space, albeit in some cases, smaller space, which will help rents stabilise or move higher in 2023. We anticipate national office vacancy will sit between 12-14 per cent this year.”
NEW SOUTH WALES
Antonia Foweraker, Cushman & Wakefield’s National Director & NSW Head of Office Leasing said “Quality remains front of mind for businesses to encourage their staff to return to the office together with talent attraction and retention remaining the key issues. Overarching economic uncertainty has led tenants to delay leasing decisions which has placed some upwards pressure on vacancy. A limited supply of newly constructed office space in 2023 should provide a short-term cushion for the market.”
SYDNEY NORTH SHORE
Giuseppe Ruberto, Cushman & Wakefield's Head of North Shore and Metropolitan Office Leasing said “The flight to quality remains the clear trend for tenants as companies adjust to a hybrid working model.
“This has led to a tightening in North Sydney’s Prime market, which is likely to persist until the new developments at Victoria Cross and Blue Street are completed. Beyond this, any new construction will likely be limited by the ability to secure precommitments from tenants.
“Further afield in the Metro markets, Parramatta and Macquarie Park are likely to feel some pain particularly in the B-grade stock as tenants in these markets upgrade to newly completed A-grade space. This segment of the market is experiencing significant upwards pressure in vacancy and incentives.”
Chas Keogh, Cushman & Wakefield’s National Director, Joint Head of Department, Office Leasing Victoria said “What we are seeing in Melbourne is a divergence in the market. Vacancy is reducing and rents are still performing well in good quality buildings which are well located and owned by landlords willing to invest in them.
“The vacancy rate is forcing landlords to be proactive in what they do to ensure longevity during tough market conditions, and those not proactive will and are suffering off the back of the market’s higher vacancy rate, which will be recorded anywhere between 13-16% in the Melbourne CBD.
“There absolutely is a flight to quality in the Melbourne CBD which is supported by occupiers who are reducing their footprint size in order to deliver a better offering for their staff, from an amenity, building quality and location perspective”.
According to Ben McKendry, Cushman & Wakefield’s National Director, Head of Metropolitan Leasing, Office Leasing, Victoria, “Melbourne’s Fringe Markets have continued to perform exceptionally well throughout 2022 and we are now seeing a significant tightening of space in the A grade and new building market.
“Flight to Quality is still very much in demand but tenants are also seeking a flight to amenity with locations close to retail, hospitality and public transport leasing strongly.
“Only a handful of new buildings enter the market this year with a significant spike developing in 2025 as developers catch up from the Covid lag which will put upward pressure on rents and incentives should stabilise although this varies from market to market and tenant size requirements.
“St Kilda Road is facing historically high vacancy as companies take advantage of market conditions to upgrade however buildings close to Anzac Station will continue to lease well due to increased amenity and owners investing in major building refurbishments. We are also seeing some signs residential conversion is starting to ramp up again which will help remove secondary stock from the market” he said.
Billy Miller, Cushman & Wakefield’s Director, Head of Office Leasing believes Brisbane CBD vacancy has continued to taper over the last six months and looking forward through 2023 it should continue to tighten further with no stock additions planned for 2023.
“Like the first half of 2022 we continued to see a flight to quality, with demand for premium space still strong, placing downward pressure on available premium space.
“With continuing low unemployment rates, the war for talent remains and employers are looking for ways to retain staff. A flight to quality provides this (if they can find space), with higher quality fit outs and more amenity providing incentive for employees to 1) come back into the office and 2) remain with their employer 3) sign with a new employer” he said.
Roly Egerton-Warburton Cushman & Wakefield’s Director, Head of Leasing, WA said “With unemployment at 3.5% and near-record prices for commodities, the WA economy continued to strengthen through to December 2022.
“Average weekly earnings remain the highest in Australia and WA is now the world’s largest producer of lithium, the world’s largest producer of gold and the world’s largest producer of iron ore.
“The demand for these commodities is not forecast to slow down in 2023, driving strong leasing activity through all grades. Net Rents are increasing and there is strong downward pressure on incentives. The inflated cost of construction is inhibiting the supply of new stock, providing a tightening leasing market.
“Nationally, the Perth CBD vacancy is high at 15% but we expect to see continued improvement in 2023, as demand is strong and occupation rates in the CBD are the highest in the country”.
Adam Hartley, Cushman & Wakefield’s Director and Head of Office Leasing South Australia said whilst the Adelaide Office market has been resilient to the COVID impact other states have experience, the way offices and their employees work is evolving.
“We are seeing more businesses moving towards higher quality accommodation as they are seeking office space that provides better amenities and services. This is to attract new talent and retain quality staff.
“More fresh air, outdoor spaces, natural light and collaboration spaces are becoming increasing popular. In the sub 500sqm market, tenants are focused on office accommodation that reduces risk, by securing existing fitted accommodation or spec suites that provide a fast, cost effective and easy relocation option.
“As we see an increase in the vacancy rate of older generational office buildings, these property owners will need to carefully consider what is important to the “new” tenant, and how they can accommodate changes to their buildings”.