What's in store for your CBD office market in 2016?

Colliers International Office Leasing experts share forecasts for the year ahead

With the Property Council of Australia today releasing its 2016 Office Market Report, we asked some of our experts across the country what we can expect to see in major CBD office markets in the year ahead.

NATIONAL: Simon Hunt, Colliers International Managing Director, Office Leasing

“The latest figures from the Property Council of Australia highlight the two-tier nature of Australia’s office markets nationally as a new year swings into action.

“In 2016, tenant appetite for Australian office space will continue to diverge between the high demand cities of Sydney and Melbourne and the country’s remaining major cities. Consumer confidence levels remain elevated and business confidence has now had a sustained increase over the past 12 months.

“This started to flow through to a number of markets at the beginning of 2015, with Sydney CBD office in particular showing a significant decline in vacancy over the year. This run is expected to continue to spread to other markets, with Melbourne CBD office in particular likely to experience strong demand conditions.

“Our latest Office Demand Index found tenant enquiry for office space in the Sydney CBD increased 24% in December 2015 compared to the previous quarter (September 2015). The biggest increase in demand was at the biggest end of the market, for space greater than 3,000sqm.

“With 52% more enquiry recorded in the 3,000sqm-plus sector of the market, we can see that more big businesses are actively enquiring for office space than small businesses in the Sydney CBD at present and we expect this trend to continue in 2016."

SYDNEY CBD: Cameron Williams, Colliers International National Director, Office Leasing

“Demand remained consistent in the second half of 2015 and continued to improve at the premium end of the market. We expect demand will exceed historic levels as a result of the improving NSW economy, the withdrawal of existing buildings for change of use/redevelopment and the withdrawal of buildings as a result of the Sydney Metro rail project that impacts a number of core and midtown office buildings.

“The market is expected to continue a flight to quality dynamic as tenants trade up into better quality premises. Well located A and B grade buildings continue to perform well, and this will place downward pressure on incentives within those buildings and create opportunities particularly for premium grade buildings with low rise vacancies to capture those occupiers.

“What’s holding the Sydney CBD back from significant rental growth in 2016 is the uncommitted supply within Barangaroo. Beyond Barangaroo the next significant amount of supply is not expected to come on line until the period 2019 – 2021. Generally these projects are at the higher end of the market and include 60 Martin Place, Quay Quarter Tower, Brookfield’s 10 Carrington Street and potentially the Lend Lease controlled Circular Quay Tower."

MELBOURNE CBD: Tony Landrigan, Colliers International National Director, Office Leasing

“Our outlook for the Melbourne CBD office leasing market in the year ahead is a strong one. In 2016, we will see continued growth in the smaller sector of the market in the Melbourne CBD, in a continuation of a key theme from last year.

“Landlords who have been able to subdivide floors and offer spec fitouts have taken advantage of some healthy uplifts in rents and reduced incentives and reaped the rewards.

“In the next 12 months, we will also see quite a bit of pre-commitment activity as looming lease expiries in 2017-20 creep nearer. There will be an uplift in net rents in 2016 and incentives could diminish down to the mid-to-high twenties by end of the year. Landlords who have reinvested back into their buildings will look to take advantage of a reasonably strong leasing market in the year ahead.

“The reduced vacancy rate in the Melbourne CBD is the result of both strong activity at the smaller end of the market and also tenants, large and small, continuing to relocate into the city from fringe and suburban markets. This was a consistent theme throughout 2015 and shows no signs of waning this year. We have already seen a bit of this activity early in the year and it is set to continue."

ADELAIDE CBD: James Young, Colliers International National Director, Office Leasing

“Although there has been an increase in vacancy over the least six months, much of this is due to new supply being added to the market. The good news is that the Adelaide market is nearing the end of the supply cycle, so any improvements in demand are likely to see vacancy tighten by the end of 2016. The current forecasts suggest modest growth in white collar employment for 2016 with bigger gains expected during 2017. Much of this growth is expected to come from small to medium businesses, education and health sectors."

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