The Sydney CBD commercial office market will be the prominent player in 2008. A rise in leasing activity probably will take place with businesses re-examining the selection of buying as the costs of borrowing drain the underside line. Strong tenant demand underpins a new round of construction with several new speculative buildings now prone to proceed.
The vacancy rate probably will fall before new stock can comes onto the market. Strong demand and too little available alternatives, the Sydney CBD market is apt to be a vital beneficiary and the standout player in 2008.
Strong demand stemming from business CBD oil Wholesale and expansion has fueled demand, however it's been the decline in stock which includes largely driven the tightening in vacancy. Total office inventory declined by almost 22,000m² in January to June of 2007, representing the greatest decline in stock levels for over 5 years.
Ongoing solid white-collar employment growth and healthy company profits have sustained demand for office space in the Sydney CBD over the 2nd half of 2007, leading to positive net absorption. Driven by this tenant demand and dwindling available space, rental growth has accelerated. The Sydney CBD prime core net face rent increased by 11.6% in the second 1 / 2 of 2007, reaching $715 psm per annum. Incentives offered by landlords continue to decrease.
The total CBD office market absorbed 152,983 sqm of office space during the 12 months to July 2007. Demand for A-grade office space was particularly strong with the A-grade off market absorbing 102,472 sqm. The premium office market demand has decreased significantly with a poor absorption of 575 sqm. In comparison, last year the premium office market was absorbing 109,107 sqm.
With negative net absorption and rising vacancy levels, the Sydney market was struggling for five years involving the years 2001 and late 2005, when things began to improve, however vacancy remained at a fairly high 9.4% till July 2006. Because of competition from Brisbane, and to a lesser extent Melbourne, it is a real struggle for the Sydney market recently, but its core strength has become showing the actual outcome with probably the best and most soundly based performance indicators since early on in 2001.
The Sydney office market currently recorded the next highest vacancy rate of 5.6 per cent when comparing to all the major capital city office markets. The greatest escalation in vacancy rates recorded for total office space across Australia was for Adelaide CBD with a small increase of 1.6 per cent from 6.6 per cent. Adelaide also recorded the best vacancy rate across all major capital cities of 8.2 per cent.
The city which recorded the best vacancy rate was the Perth commercial market with 0.7 per cent vacancy rate. When it comes to sub-lease vacancy, Brisbane and Perth were one of the better performing CBDs with a sub-lease vacancy rate of them costing only 0.0 per cent. The vacancy rate could additionally fall further in 2008 because the limited offices to be delivered over the next couple of years come from major office refurbishments that much has already been committed to.