Office Market Monitor | 2022 12 Despite challenging demand conditions and higher vacancy rates, 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. Conversely, many tenants prefer the incentive upfront in order to finance their fitout. There are markets, however, that are performing better than others. Despite having higher vacancy than Sydney, Melbourne or Canberra, Brisbane face rents are increasing at the fastest rates, and incentives are reducing – albeit from a high base. Office net absorption in the first half of 2022 was 44,690square metres, according to the Property Council of Australia (PCA) and this was the highest level since 2016. Take up in prime grade space dominated, and flight to quality by tenants is what is driving the increase in rents and decrease in incentives. In Sydney, Melbourne and Canberra, face rents are rising very incrementally, and incentives are staying steady, as take up comes up some very strong years prior to the pandemic. Perth and Adelaide have also recorded minor increases in face rents, and minor decreases in incentives, helped along by the fact that day to day office occupancy in these markets were the least impacted by both lockdowns and bad weather. Looking forward, it is likely that incentives will stay elevated as the new supply that is due to complete in the remainder of 2022 and 2023 is worked through. It is not until the supply pipeline starts to look very thin in the next year that incentives really start to reduce. This will likely be 2024 and should also correspond with a recovery in economic conditions both globally and domestically. Rents and incentives Australian Office Market Indicator Expectations – 12 months Source : LJ Hooker Commercial FACE RENTS INCENTIVES Sydney Melbourne Brisbane Adelaide Perth Canberra Stable Slight increase Slight decrease
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