Commuters returning to offices
Commuters began returning to offices, but not yet at full capacity. Image – Canva
  • The pandemic caused a short sharp recession in Australia during the first half of 2020
  • Activity returned in the second half of 2020, and in final quarter in Melbourne
  • Not everyone has returned to offices yet, with soft office rentals resulting

An uptick in office leasing activity has been recorded as deals delayed by the COVID-19 uncertainty resumed, according to the latest research from Cushman & Wakefield.

Their Q1 2021 report on the Australian office leasing market also found an increase in enquiries, while higher vacancy rates are also placing upward pressure on incentives.

The pandemic caused a short sharp recession in Australia during the first half of 2020. Data to December 2020 indicated the Australian economy returned to growth in the second half of the year, rising 3.3% in quarter 3 and 3.1% in the fourth quarter after a 7.3% decline in the second quarter

Sydney office market

Real state final demand in New South Wales (NSW) also bounced strongly, rising 6.8% in Q3 and 2.9% in Q4 after declining 8.5% in Q2.

“Assuming the pandemic is contained globally, both NSW’s and Australia’s economic growth rates are expected to remain positive over the forecast horizon with relatively strong growth expected over the next few years.”

John Sears, National Director, Research, Cushman & Wakefield

Deloitte Access Economics forecast real gross state product (GSP) to increase by 4.4% over calendar 2021 with annual growth to average 2.7% over the following three years. Over the past 10 years, NSW GSP annual growth has averaged 2.4%.

Sydney’s prime gross effective rents were recorded at $910, falling 1.9% quarter on quarter, and down 15.5% year on year.

Prime Gross Effective Rent, Overall Vacancy (6-monthly)

Prime Gross Effective Rent
Source: PCA, Cushman & Wakefield Research

Average incentives rose from around 32% in Q4 to 33% – with the relatively high vacancy continuing to put upward pressure on rent incentives.

“While face rents were stable over 2020, lower grade stock is starting to see some downward movement for net face rents, however, higher outgoings are keeping gross face rents steady in Sydney,” said Mr Sears.

Around 125,000 square metres of new and refurbished space is anticipated to come online in the Sydney CBD over 2021.

Melbourne

Victoria did not follow the same economic trend as the rest of the country, due to the continued lockdown restrictions in place. Real state final demand declined 8.5% in Q2 and fell another 9.7% in Q3, which was three-quarters of decline for Victoria. Over the past 10 years, Victoria GSP annual growth has averaged 2.3%.

In Melbourne, the prime net effective rent was $393, down 13.5% year on year.

Net Incentives continued to move upward in Q1 2021, maintaining the 2020 pace, with premium-grade incentives rising to 37.5% from 34.8%.

Enquiry is expected to improve, as at the end of Q1 only 30% of office workers had returned.

Brisbane

Real state final demand in Queensland also bounced, rising 0.8% in Q3 and 2.4% in Q4 after declining 5.1% in Q2.

Assuming the pandemic is contained globally, both Qld’s and Australia’s economic growth rates are expected to remain positive over the forecast horizon with relatively strong growth expected over the next few years.

Deloitte Access Economics forecast real gross state product (GSP) to increase by 4.6% this calendar year and 3.6% next.

Prime gross effective rents in Brisbane were recorded at $470, down 4.1% year on year.

After a year of stalled gross effective rental growth, the Brisbane CBD is seeing some movement in incentives and gross effective rents.

Today’s snap 3-day lockdown will probably not help matters, depending on the outcome.




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