NEWS

Office markets set for growth in 2018

What's in store for your office market in 2018? Colliers International's experts on the ground share their thoughts.

SYDNEY CBD

Cameron Williams, Colliers International National Director of Office Leasing, said the vacancy rate in the Sydney CBD would continue to trend downwards with significant new supply still sometime away from completion.

“The Sydney CBD will remain tight for sometime with few options available for those organisations considering relocation. Rental growth will continue throughout 2018,” Mr Williams said.

“With lower incentives available to occupiers seeking to lease vacant premises, they will be prepared to accept higher rents and make do with existing fitouts, these circumnstaces will be the main driver of rental growth in 2018.

“With the cost differential between the North Sydney CBD and the Sydney CBD at it’s highest level for a decade, we expect some Sydney CBD occupiers will consider a relocation over the bridge.

“The challenge for Sydney CBD occupiers will be to source office space in the North Sydney CBD of the quality they’re used to."


MELBOURNE CBD

Andrew Beasley, Colliers International National Director of Office Leasing, said the first half of 2018 was expected to see vacancy trend further downwards in the Melbourne CBD.

“We expect it will reach the record lows of 2008, when the vacancy rate bottomed at 3%,” Mr Beasley said.

“This will provide strong competition for tenants seeking prime office space, which is likely to result in significant face rental growth and a decline in incentives. This will see a compound in effective rental growth for landlords throughout 2018."

Mr Beasley predicted a strong start in the first half of 2018, with a number of larger tenants expected to make decisions on their preferred office locations for 2019 and beyond.

“With the vacancy rate in the Melbourne CBD expected to fall to around 4% by mid year, we also expect tenant demand to be high and competition to secure office premises strong with limited options currently available for tenants seeking prime quality office space in excess of 5,000sqm,” he said.

“It’s likely that we will also see an increase in renewal activity as tenants simply will not have the options to choose from, which will see landlords in a strong position to drive rents."

2017 had been another record year in the Melbourne CBD, with particularly strong activity at the smaller end of the market.

“We had an outstanding 2017, with a record 193 leasing transactions across the Melbourne CBD leasing market indicating strong tenant demand,” Mr Beasley said.

“The trend towards small suites has been cemented in the Melbourne CBD over the past 12 months, with buildings such as 360 Collins Street, Rialto and 567 Collins Street successfully rolling out small suite strategies that have resulted in strong leasing results in record timeframes."


BRISBANE CBD

“Despite the increase in vacancy to an historical record high, we are optimistic for 2018 due to the significant number of enquiries in the market from small suites through to whole building requirements such as Suncorp’s search for its global headquarters,” Matt Kearney, Colliers International National Director of Office Leasing, said.

“The re-election of the State Government means continued momentum for planned infrastructure projects such as Cross River Rail and this will have positive flow-on effects for the Brisbane CBD market in particular.

“Also worth noting is that the standard of office accommodation in Brisbane has vastly improved in recent years due to landlords and developers adopting an innovative and a proactive approach to optimise the workplace through investment in building amenities, upgrades and performance."


ADELAIDE CBD

“Adelaide has seen sustained jobs growth which has improved demand for office space and positive net absorption,” James Young, Colliers International State Chief Executive – South Australia, said. “This growth in jobs is forecast to continue through 2018.

“The lack of supply being delivered over the next 18 months in the Adelaide CBD will see any improvements in demand result in vacancy tightening.

“Although incentives are currently up to 40%, we expect that there is a case for this to start to fall over the next 18 months.

“Based on the tenant enquiry we have witnessed over the Christmas and New Year period, we are confident of an increasingly active leasing market in 2018."


PERTH CBD

The vacancy in Perth’s CBD office market has fallen below 20 per cent for the first time in two years as lower rents, office fit-outs, floor sub-divisions and leasing incentives attract new tenants into city buildings.

PCA figures show the January vacancy in Perth’s CBD at 19.8 per cent, down from 21.1 per cent in July.

Perth’s office market is also starting 2018 with vacancies in premium-grade buildings dropping sharply to 6.3% and a watchful eye on the rising demand for project space from resource companies.

Colliers International Associate Director Office Leasing Dustin May, who presented the Perth Office Market Report to a PCA breakfast audience this morning, said Perth’s office market had turned a corner after five challenging years.

“For several years we’ve been witnessing a lot of reshuffling in the market as tenants relocate to take up better deals in upgraded buildings but in a very noticeable change, we are now seeing growth from existing tenants as well as demand from new businesses entering the CBD market,” Mr May said.

“Office space in a number of CBD towers is being absorbed far more quickly than anticipated and demand remains strong for quality fitouts because they allow tenants to use all of their incentive towards a rent reduction."

Further confirmation that a recovery, albeit a modest one, was underway, was the CBD’s office space net absorption of 22,178sqm, slightly under the 25,130sqm recorded in August.

Colliers International’s Director Office Leasing Daniel Taylor said 19,000sqm of premium office space was absorbed in the second half of 2017 and the recovery was most pronounced in prime buildings in the CBD’s west.

“In 2018, the beneficiaries of this absorption will be Perth’s A-grade buildings and better quality B-grade buildings that have been repositioned,” Mr Taylor said.

“Tenants are still conservative about their expenditure but they are also cautiously optimistic about their space requirements.

“As 2018 unfolds, we also expect to see downward pressure on incentives in premium and A-grade buildings where landlords are comfortable with their occupancy levels."

Doug Henry, Colliers International Managing Director of Occupier Services, said the reduction in vacancy rates could be attributed to Premium and A grade stock.

“What is currently in short supply is A grade contiguous floors of over 1,000 sqm. Over the next six to 12 months, occupiers will continue to find good deals throughout Perth but will have a harder time if they require large contiguous floors.

“If it’s possible, occupiers may find it beneficial to consider bringing forward their leasing decisions to this year, in order to take advantage of the final stages of this phase of the supply cycle."


CANBERRA

Michael Ceacis, Colliers International Director, Office Leasing said: “Vacancy is trending up due to new supply in the market and some minor Commonwealth Government consolidation. With limited new supply coming online in the next 12 months, the increased enquiry from the private sector, and Government, we are seeing for late 2018 or early 2019 will put downward pressure on vacancy.

“Heading into an election year, Government expenditure is likely to increase following the May 18 budget which should see positive impact on the property market and lower vacancy in Canberra."

Michael Ceacis, Colliers International Director, Office Leasing said there was a continued flight to quality in the Canberra office market.

“As a result of tenant demand, we are seeing a number of secondary assets repositioned and new projects take flight,” Mr Ceacis said.

“As businesses in Canberra compete for talented staff, we have seen tenants become more discerning and begin to consider wellness initatives, highly specified end of trip facilities, access to public transport, proximity to amenity and availability of third spaces when choosing office space.

“As such, we have seen a number of buildings repositioned and projects emerge in the market catering to these needs.

“Similarly, some businesses have become conscious of the gap in the quality of their Sydney and Melbourne offices compared to their Canberra accommodation. New projects like Civic Quarter Canberra are being developed to bridge this gap.”

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