Despite market uncertainty, face rents in Sydney, Melbourne, Brisbane, and Perth were stable or higher in Q3, reflecting new and higher quality stock coming online, according to Cushman & Wakefield’s Q3 2022 Office Marketbeat. While elevated incentives across the country are capping further effective rental growth, net absorption within higher grade supply and strong pre-commitments suggests the flight to quality continues apace.
In the Sydney CBD, prime face rents lifted by around 2% in Q3 to average $925 sqm, driven by the completion of new premium space, including Quay Quarter Tower and refurbishment of A-grade buildings. Prime incentives remained elevated at 34% amid higher vacancy. This led to gross effective rents also rising around 2% during the quarter, equating to year-on-year growth of 4.8%.
The Melbourne CBD office market was also in a holding pattern, and while enquiry levels were up year-on-year, many larger tenants opted for shorter-term extensions. Prime incentives stabilising at 39%, but around 2% lower than 2021 levels. Prime net effective rents continue to average $410 sqm in Q3, though this is a 5.3% year-on- year increase.
Gross face rents in all office grades within the Brisbane CBD grew in Q3. Higher incentives largely offset this, with prime incentives now averaging 42%. This led to prime gross effective rental growth of 0.6% in Q3 to $460 sqm and 3.1% over the year to date.
Prime net effective rents in the Perth CBD rose by 1.3% in Q3 to average $315 sqm, but are down 0.9% year-on- year. The rise was driven by a lift in premium net face rents, which now average $705 sqm. A-grade net face rents were steady around $590 sqm. Premium net incentives were steady at 48% and A-grade at 52%. The stronger rental growth in premium stock suggesting that the flight to quality is gathering momentum.
Cushman & Wakefield’s Head of Research Australia and New Zealand, John Sears, said: “Tenants and landlords in Australia’s major CBD office markets are navigating uncertain economic conditions, which is putting locations like Sydney and Melbourne into a relative holding pattern.”
“We’re seeing the flight to quality among tenants matched by new and higher quality stock coming online in most CBD locations around Australia. The higher incentive levels providing an opportunity for tenants to move up the quality curve, which many are taking.”
“Looking at absorption, enquiry levels and pre-commitments in the higher-grade segments shows us that despite higher inflation, interest rates and economic uncertainty demand held up over Q3, buoyed by employers looking for ways to attract talent, adapt to new ways of working and encourage staff back to the office.”