Vacancy Rates Dip In Office Market

Sydney Morning Herald

Wednesday October 20, 2004

Scott Rochfort

The buoyant Australian economy and continuing recovery in white-collar employment appear to have chipped away some of the excess office space in Sydney's CBD, with preliminary research by Jones Lang LaSalle showing vacancy rates have retreated for the first time since December 2000.

Helped by tenants such as Telstra leasing extra space, Sydney's office market recorded its second consecutive quarter of positive net absorption in the three months to September, JLL says. With Australian CBD office markets recording a net absorption of 83,000sqm for the quarter, the realtor says net absorption in Sydney was 8000sqm.

In a sign Sydney's office market may finally be recovering from its post-Olympic slump, vacancy rates fell from a 4 1/2-year peak of 11.9 per cent in the previous quarter to 11.7 per cent, JLL says. Vacancy rates were 4 per cent in December 2000.

Major deals in the quarter included Telstra's 9000sqm at 151 Clarence Street, Perpetual Trustees leasing 11,000sqm at Angel Place, Hudsons taking out 7000sqm at 45 Clarence Street and FM Insurance signing up at 255 George Street.

The national CBD vacancy rate fell from 10.2 to 9.8 per cent in the quarter. The strongest vacancy decline was in Melbourne, which accounted for more than half (45,000sqm of 83,000sqm) of the nation's net absorption for the quarter.

JLL's head of metropolitan leasing, Richard Garing, said there was "a lot of demand coming from the top end of the market". Tipping a further fall in Sydney CBD vacancy rates in the year ahead, Mr Garing said healthy business confidence was leading some organisations to find higher-quality workplaces for their staff. "Companies are looking at ways of improving their business," he said.

JLL also credits the turnaround in Sydney to several tenants moving into the CBD from the city's fringes, such as Tourism Australia moving from William Street to Darling Park and the health professionals' registration boards from Surry Hills into Sydney Central.

As for rental growth, JLL says Sydney posted a 0.4 per cent lift in rents for the quarter, with prime face rents increasing and incentive rates stable.

Signs of an improvement in the Sydney CBD market are backed up by the latest floor availability report from FPDSavills. The report, which covers all available premium and Grade A floors (including those under construction), recorded a net absorption of 25,414sqm in the September quarter. The realtor says availability tightened from 267 floors to 259 over the period, leaving 364,104sqm of prime-grade full floors available for lease.

FPDSavills' research manager, Chris Freeman, said the recovery in the Sydney CBD leasing market was in its "early, early stages". He credits the recovery in the leasing market to the pick-up in white-collar employment. "Obviously the main driver for office space is the amount of people working in the city," he said, noting workspace ratios had contracted from 20.9sqm per person in 2001 to about 19.5sqm.

Mr Freeman said the strong outlook for white-collar employment could result in a further 70,000sqm of premium and Grade A space being soaked up next year. But with over-supply in the present development cycle "creating almost 300,000sqm of unoccupied space from new developments and backfill-affected buildings", rental levels will take much longer to recover.

© 2004 Sydney Morning Herald

Back to News Index | Back to Home