Office Market Monitor | 2022 10 Overall, we know that the risk of commencing construction of a new office building today is much higher than it was pre-Covid. This is because of higher interest rates, uncertain tenant requirements, and higher vacancy across the board. Nevertheless, many tenants are choosing to upgrade to new or prime grade space, and this should sustain some demand for new developments going forward. Vacancy Rates have increased in all markets throughout the pandemic. However, Prime Grade CBD space is proving the most resilient, as many tenants are choosing to upgrade to better space as more has become available, and to provide their staff with the best possible office conditions. Interestingly, non-CBD vacancy rates have increased by the biggest margin. This is a response to both increased supply in some markets (such as Parramatta & North Sydney) and tenants choosing to not renew leases as staff are working from home. In some cases, businesses are choosing to keep their central CBD space, and relinquish satellite/suburban offices that the home office has essentially replaced. Office Vacancy Rates Vacancy Rates have increased in all markets throughout the pandemic. H wever, Prime Grade CBD space is proving the most resilient, as many tenants are choosing to upgrade to better space as more has become available, and to provide their staff with the best possible office conditions. Interestingly, non-CBD vacancy rates have increased by the biggest margin. This is a response to both increased supply in some markets (such as Parramatta & North Sydney) and tenants choosing to not renew leases as staff are working from home. In some cases, businesses are choosing to keep their central CBD space, and relinquish satellite/suburban offices that the home office has essentially replaced. source: PCA OMR July 2022 Rent and incentive update Despite challenging demand conditions and high vacancy, face rents continue to rise in all markets, albeit it marginally. Many landlords prefer to offer higher incentives rather than reduce the face rent, as rents are reviewed each year to either CPI or another agreed amount, and this ensures that rents keep up with inflation. 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18 Mar-19 Aug-19 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Office Vacancy R s CBD Prime CBD Secondary Non-CBD Prime Non-CBD Secondary CBD Prime CBD Secondary Non-CBD Prime Non-CBD Secondary Source : Property Council of Australia
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