Prime gross effective rents continued to push higher in the Sydney, Brisbane, Adelaide and Perth CBD office markets in the first quarter of 2023, buoyed by higher quality supply, steady tenant demand and the impact of inflation on face rents. This was led by the Sydney CBD, recording a 2.9% quarter-on-quarter uplift, with prime net effective rents rising from $930 to $960 per sqm.
According to the Cushman & Wakefield’s quarterly Office Marketbeat, the uplift in rents in Sydney during the quarter was driven by new, higher quality buildings coming online a larger share of premium grade buildings in the prime basket.
This helped take the rolling annual increase in effective rents to 6.9% including a 7.7% rise in face rents. Major leasing deals during the quarter included law firm, Ashurst, securing more than 10,000 sqm at 39 Martin Place.
Prime effective rents in the Melbourne CBD rents were steady and a slower return to work has kept incentives stubbornly high. Cushman & Wakefield’s Victorian leasing team report a strong increase in occupier enquiry, up 30% across January and February, as tenants leverage favourable conditions.
With a number of significant leasing transactions in the pipeline, confidence is expected to grow over 2023 as occupiers continue to seek out high quality accommodation to attract and retain staff.
Cushman & Wakefield’s Head of Research Australia and New Zealand, Dominic Brown, said: “We’re seeing prime CBD office rents continue their upward trajectory in most markets across Australia, with Sydney setting the pace in the new year.”
“While demand for office space in Australia’s largest office market remains stable, the time between inquiry and decision is being extended. Tenants are more discerning given the uncertain economic conditions, and incentives remain higher as a result.”
During the quarter, premium gross face rents in Brisbane’s CBD jumped 2.1%, climbing from $965 per sqm to $985 per sqm. This was largely driven by the uptick in face rents while incentives remained mostly unchanged.
This supported a rolling annual increase in prime gross effective rents of 10.2%, the largest increase of all states. Cushman & Wakefield agents note that with limited supply forecast over the next three years it’s expected that tighter vacancy will place upward pressure on rents.
Steady year-on-year growth in the Perth CBD office market of 6.3% was supported by a 4.5% increase in prime net effective rents in Q1, lifting from $370 to $380 per sqm. According to Cushman & Wakefield, leasing activity is growing, particularly for pre-fitted space given rising construction costs. Signs that incentives have peaked also appeared during the quarter.
Adelaide CBD prime net effective rents increased by 3.5% in Q1, moving from $255 to $264 per sqm. This led to a YoY increase of 8.0%. Demand for quality stock remains high across the Adelaide CBD market, with the largest deals during the quarter being pre-commitments for upcoming buildings. This included Services Australia pre-committing to 28,500 sqm at 60 King William Street and DPTI securing 18,500 sqm at 83 Pirie Street.
Meanwhile, prime net effective rents in the Melbourne CBD were flat in Q1 and retraced moderate earlier gains to settle at $410 per sqm. Amid higher year-on-year inquiry and net absorption in the prime segment, incentives have stabilised.
While rents were steady, Cushman & Wakefield’s Victorian leasing team report that during similar past cycles the CBD experienced greater reductions in prime net effective rents. That’s providing confidence for occupiers to welcome a return of activity across 2023.
Cushman & Wakefield’s Research Manager, Queensland, Jake McKinnon, said: “While we’re seeing variation across CBD markets and at a building level, the trend is clear. Demand is continuing to build in most locations, with premium buildings and inflationary conditions pushing rents higher.”
“With larger tenants generally slower to commit, fitted out speculative suites are providing the most activity among smaller occupiers. Prime quality space continues to experience solid absorption at the detriment of secondary stock.”
