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Cushman & Wakefield’s 2022 End of Year Market Commentary and 2023 Forecast

Jess Freeman • 09/12/2022


According to Simon Fenn, Cushman & Wakefield’s Managing Director, Commercial Real Estate ANZ, rapidly changing macroeconomic conditions over the course of 2022 has slowed the market; we are certainly operating under different conditions than we expected to be at the beginning of the year.

“The lack of a clear consensus on the future path of interest rates has led to some frictions in capital markets. As inflationary pressures stabilise, we expect these frictions to ease, closing the gap in pricing between buyers and sellers.

“Although higher rates are likely to have an impact on capital values, this impact should be at least somewhat offset by income growth, particularly in the industrial market where there is little to no vacant space or for assets of the highest quality.

“There are several exciting opportunities emerging in alternative markets. One being childcare, which is currently entering a strong growth phase supported by strengthening demographics and increased federal funding. These assets are characterised by longer leases of 10-20 years with multiple 10- or 20-year options offer a measure of stability over other asset types.

“The multifamily market appears to be nearing a tipping point which would push it into a sustained period of rapid growth. There looks to be momentum behind policy reform that would lower hurdle rates for investment and unlock a chest of capital that may help to alleviate Australia’s acute housing shortage and create a significant asset class of scale, like many parts of the world” he said.


According to Josh Cullen, Cushman & Wakefield’s International Director & Head of Capital Markets, Australia and New Zealand, 2022 saw both domestic and global investors become increasingly cautious, with rising debt markets the biggest driver for the year.

“We expect stabilisation in debt markets to occur in Q2 2023 which should see some investor activity increase across Australia. There will also be a shift in cap rates, however it won’t be as significant in Australia’s core markets, as we expect to see a greater impact in the secondary markets” he said.


Sydney CBD

Antonia Foweraker, Cushman & Wakefield’s National Director, NSW Head of Office Leasing said following strong demand and high transaction levels during 2021, the market expected this to continue in 2022, however given the prevailing weakening global economy and inflationary pressures, demand and transaction levels softened throughout this year.

“Following a review of more than 200 transactions completed YTD, the flight to quality trend has continued with 72% of commitments involving a quality upgrade. This has been key in encouraging staff to return to the office.

“Partitioned premises continue to dominate the sub 1,000sqm market with almost 85% of transactions completed within partitioned premises’. Ms Foweraker noted that this trend is very consistent with weak economic periods with tenants seeking the reduction in overall costs by applying their incentive to reduce their rental rather than be allocated upfront towards fitout.

“Incentive levels are at their highest in 1,000sqm plus transactions as Landlords’ continue to compete with significant whole floor vacancy and pending new supply. We anticipate demand to remain constrained until mid-2023, with demand picking up in the back end, as inflationary pressures are expected to ease” she continued.

Sydney Metro

According to Giuseppe Ruberto, Cushman & Wakefield’s Head of North Shore and Metropolitan Office Leasing, the Sydney Metropolitan office markets continued to see deal flow over the course of 2022.

“Specifically, we saw strong activity in North Sydney, Chatswood, Macquarie Park and Parramatta where despite high levels of overall vacancy high quality A/Prime Grade space and new developments continued to outperform and attract occupiers.

“The trend continues with occupiers cutting office space as more adopt a hybrid working environment, however all have opted to upgrade in quality as they seek to provide better working environments for their staff as the war for talent continues.

“As we enter a period of global uncertainty, we expect leasing transactions to slow in the first half of 2023 before improving in the second half of 2023. Tenants will continue to transact as they re-adjust their real estate footprint to accommodate greater hybrid working and we expect the ongoing trend of flight to quality will be the main driving force.

“Capital will remain tight and therefore Landlords will be needing to provide more cash contributions to entice tenants to relocate” he said.


Victorian Metropolitan Markets

Marcus Neill, Cushman & Wakefield’s Director of Metropolitan Markets, Victoria, said The Victorian Metropolitan Markets team have witnessed a change in key investors over the last 18 months, compared with previous years.

“Key investors have predominantly been in the BTR sector, and it is hard to ignore this rapidly emerging and exciting sector. Groups are well capitalised, many of which have raised equity through institutional capital on a global scale. We are currently tracking over 40 groups seeking to have exposure to this sector and we have concluded four BTR deals with a fifth under offer.

“Many transactions in the last 18 months have been through BTR developers acquiring sites which previously had a permit for BTS in most instances have been resold due to the foreign investor market retreating.

“We expect Australia’s BTR market will mature rapidly over the next three to five years, with the number of BTR units to rise from just over 3,500 today to more than 20,000 units by 2027 based on the existing project pipeline alone. Currently, 14 major institutional investors are developing 40 BTR projects nationwide, representing 12,848 units under construction and this number is growing on a daily basis. This represents a market size based on combined asset values of $9.6 billion.

“Victoria is expected to develop the lion’s share of units and host almost two-thirds of national stock within the next decade”.

Melbourne Office Leasing

According to Chas Keogh, Cushman & Wakefield’s National Director, Joint Head of Department, Office Leasing Victoria, in a market where workers arguably have the upper hand, flexibility around remote working has become a feature for consideration in the current workspace, and the management of hybrid working.

“The opportunity for smaller, more mobile tenants has provided favourable conditions to consider new or speculatively fitted out spaces currently on the market, in line with the new hybrid model, however it hasn’t impacted greatly on the overall availability of vacant or sub lease options in the market. Larger tenants' immanent lease expiries provide for greater absorption opportunities in the years ahead, as the impact of the model adopted post COVID has some time to play out.

“Some Larger occupiers are investigating options now, significantly earlier than expiry, in an attempt to bring their workers back to the office and to attract limited talent to their businesses, this will essentially bring future net absorption levels forward and likely accelerate a recovery of the office market.

“Attractive leasing incentives and the availability of high-quality office stock should provide for greater absorption levels into 2023 and 2024. As tenants become more comfortable with the positive business conditions and are proactive in securing new talent and retaining existing talent, the market should continue to improve for the better-quality stock”.

Ben McKendry, Cushman & Wakefield’s National Director, Head of Metropolitan Leasing VIC said Melbourne's fringe has an opportunity to supply Melbourne with greater diversity around workplace options as we move into a hybrid working environment and more emphasis is being placed of the social aspect of ESG principals.

“As the CBD continues to bring new stock to an oversupplied market with buildings designed around tenant expectations prior to the pandemic, the new fringe markets of Richmond and Cremorne through to Collingwood and Abbotsford, are uniquely positioned to deliver smaller assets best suited to the traditional fringe tenant but with a focus on engaging with the community, particularly around the curation of retail or third space experiences on the ground floors and activation of rooftop areas for tenant use.

“Expected growth in creative and tech industry-based employment is also expected to support this area which is fast becoming a precinct known for high tech, Silicon Yarra”.

Melbourne Retail Leasing

Michael DiCarlo, Cushman & Wakefield’s Director of Retail Leasing said the Cushman & Wakefield retail leasing team have closed 55 CBD retail leases in 2022, and in many cases for properties vacant since the start of Covid or before.

“Rents vary, with either rental reductions or incentives increasing. The city remains the slowest of the strip retail leasing, however the CBD has seen an increase in pedestrian traffic and as of October, the foot traffic is at 70% of what it was in 2019.

“Swanston Street has quickly become the favourite again as we are getting closer to the new Underground rail being completed, Bourke Street Mall still has vacancies across general retail—including apparel and footwear, but we predict that Christmas Sales will see this turn around in 2023.

“The CBD has seen great inquiry from large food & beverage operators as well as entertainment offering and we see this continuing in 2023 as the city nightlife and weekends are thriving” he said.

Melbourne Industrial

According to David Norman, Cushman & Wakefield's Director & Head of Industrial Sales & Leasing, Victoria, some apprehension has crept into the mindset of a hot industrial market.

“The Australian economy recovered strongly from the COVID pandemic supported by extraordinary fiscal and monetary stimulus. However, strong demand, supply chain disruption and surging fuel prices caused inflation to spike and interest rates to rise sooner than expected.

“This is leading to reduced, though still positive, growth forecasts. Pricing in the markets would suggest that expectations for both inflation and interest rates in the medium term, are likely to settle at more palatable levels from mid next year, but the aggression of monetary policy levers being pulled at present give pause for concern.

“The year started with a robust industrial market on the back of accelerated levels of e-commerce and logistics demand, resulting in the strong performance of the Melbourne industrial market across land absorption, occupancy levels and record investment into the asset class. Such demand resulted in a significant appreciation in land values, momentum in previously stagnant rental levels, and tighter capital yields than the usual darling of all assets classes, the office market.

“A more cautious environment emerged as the year progressed however, and 2023 is likely to begin with a pause on investment volumes, land values and further rental appreciation.

“Investment capital chasing industrial assets remains, however it is chasing higher yield expectations around the perceived higher risks, which landlords are unlikely to accept for the time being. A resulting hiatus is likely to kick off the new year, with capital being successfully deployed in a softer market towards the second half of the year as the inflation beast is tamed” he said.


Queensland Industrial

David Gibson, Cushman & Wakefield’s Head of Industrial (QLD) said the Queensland market is experiencing a period of extreme rental growth.

“The Queensland industrial transaction market has gone from strength to strength, as five successive years of transaction volumes north of $1 billion have set new benchmarks for the state. Looking forward, despite the economic headwinds of rising inflation and interest rates we expect the transaction market to remain strong. It is likely we will see a shift away from passive long WALE assets to value add and redevelopment opportunities with shorter turnarounds.

“Strong occupier markets; limited speculative supply and extremely low vacancy rates on existing buildings has seen effective rents climb in some precincts as far as 25%. We forecast this growth to continue in land constrained markets like the TradeCoast and Northern Corridor, and at slightly lower rates of growth in the Southern and Western Corridors due to higher speculative activity.

“We are currently tracking over 200,000sqm of live occupier requirements and are confident that absorption in 2023 will be above historical averages” he said.

Brisbane Commercial Sales

According to Andrew & Michael Gard, Cushman & Wakefield’s Directors of Brisbane Commercial Sales, it’s been a turbulent market over the 2022 calendar year, as rapidly rising interest rates, elevated construction costs and a lack of availability of builders has made navigating the market difficult; however, buyer sentiment remained strong for well-located assets and development sites.

“As Brisbane encounters a rapidly growing population and record low unemployment, businesses are starting to expand their office space in order to accommodate growth. Elevated construction costs are seeing purchasers lean more towards quality fitted out properties, or properties with a quality existing structure with good underlying fundamentals, where a fit out can be tailored to suit.”, Michael Gard said.

“In terms of the residential development site market, a rapidly growing population, record low vacancy rates, the announcement of the Brisbane 2032 Olympics and a substantial price disparity between houses and apartments creating relative affordability are all factors underpinning revenue growth for developers. This growth is seeing qualified groups push through challenges in the market and acquire rare sites in gentrified inner-city lifestyle precincts.”, Andrew Gard said.

Brisbane Office Leasing

According to Billy Miller, Cushman & Wakefield’s Head of Brisbane Office Leasing, the Brisbane office markets continued to see deals flow over the course of 2022 after a subdued time during the pandemic.

“Despite the continuing effects of the pandemic and trend towards increased workplace flexibility, quality office space in Brisbane remains in high demand. We Saw 44,000 square metres of net absorption between January and July 2022, which is more than four times the historical average.”

“Throughout the back half of 2022 we saw a significant uptick in public transport patronage into the CBD on weekdays, which correlated with an uptick in occupancy according to occupancy surveys conducted by the Property Council of Australia. We expect to see further increases in 2023 as workers continue to flow back into the CBD and Fringe offices, specifically into upgraded and premium spaces as employers look to attract and retain staff in this tight labour market.”

“Capital will continue to remain tight over the and landlords will need to provide more cash contributions to entice tenants to relocate, however this should be offset somewhat by face rental increases” he said.


Perth Office Leasing

According to Mark Clapham, Cushman & Wakefield's Joint Managing Director, WA “Overall tenant enquiry remains high across the Perth office and industrial markets, and terms for new office leases continue to improve for landlords, we expect this to continue across 2023. The Western Australian economy is supported by buoyant commodities prices and next year it is expected to perform counter cyclical to global economic conditions affecting the USA, Western Europe and Australia’s East Coast. Economic downturns typically mean fiscal government spend response with investment in infrastructure projects which translates as an increase in demand for iron ore and other base metals.”

“The office leasing pre-commitment market across Perth has been hampered by rapidly rising construction costs resulting in increasing economic rents, where the equilibrium between what office tenants are willing to pay and the cost of developing new office assets has seen the office development market stall over the course of 2022 with no significant pre-commitments achieved.”

“For good quality office assets, the CBD office investment market in Perth has been relatively active over the course of 2022 with London House, 108 St Georges Terrace and Allendale Square all changing hands. Capital markets have otherwise been impacted by the increase in the cost of debt and lower quality grade assets now struggling to sell and have become relatively illiquid.”

According to Roly Egerton-Warburton, Cushman & Wakefield’s Director, Head of Leasing, WA “As 2022 closes out, the WA economy remains very strong, with unemployment at 3.4% and the energy and mining sectors driving a wave of commercial leasing activity in the CBD, fringe and suburban markets.

“Incentives and vacancies are falling, with Net Rents showing impressive growth in the last quarter. The market remains highly competitive, but indicators show we are heading into far more favourable conditions for Landlords in the coming 12-24 months”.

Perth Capital Markets

According to Ben Younger, Cushman & Wakefield’s Director, Joint Head of Capital Markets, WA, “After a strong start to 2022, we experienced a progressively challenging market, however a number of significant sales were achieved towards the later part of the year, including two A grade buildings in Allendale Square & 108 St Georges Terrace which sold with a combined value of over $540m, highlighting that demand is still strong in the WA market.

“The resources sector is proving to be stable on the back of sustained pricing of iron ore at c $80 per tonne. As such, demand for office space remains healthy with occupational requirements still heavily reliant on servicing the resource industry. Stable vacancy rates mean reduced pressure on values across the leasing market and the continued high cost of construction and lack of Tier 1 contractors means that new supply should be limited, therefore limiting further pressure on vacancy rates.

“We anticipate institutions will continue to look to dispose of major assets in WA as redemption pressure remains and the need for the recycling of capital to defund development pipelines in the new year”.

Mr Younger went on to say that major reweighting of portfolios will be driven by poor performance of the share market and negativity towards real estate nationally in light of continued interest rate rises. “We expect further pressure on book Valuations in the coming 12 months particularly if interest rate increases continue, however WA may outperform Eastern States Capital cities due to continued demand driven by the resource sector.

“In 2023, we anticipate the market will see high net worth WA privates come back to the market, especially if yields continue to soften across all investment grade stock including office, retail, childcare and fuel. Syndicators will continue to find it hard to raise money from Mum and Dad investors as fixed term deposits look more attractive with less risk” he said.

Perth Tenant Advisory

According to Sonia Dissanaike, Cushman & Wakefield’s Director, Tenant Advisory Group ANZ, the release of new stock to the Perth market (One and Nine The Esplanade, Westralia Square2 & Capital Square Tower 3) will create opportunity for tenants to consider a new office space, particularly those in fringe locations looking to enter the Perth CBD or CBD occupiers looking to upgrade.

“Flexible work, attracting & retaining staff and creating an inviting & collaborative office environment are just some of the factors companies are needing to consider in their office planning for 2023 and beyond. Starting the process early is key to ensuring this process is completed as smoothly and efficiently as possible”.

Landlords also need to be mindful of the changes in the market.

“Companies are becoming more considerate of their ESG responsibilities, which will require landlords to be proactive in ensuring their building’s performance and amenity attract tenants in the “flight to quality” environment”, says Dissanaike. “Some tenants, particularly those with sub-1,000sqm requirements, are also often coming to market later. Given fitout timelines are currently much longer, and availability of well fitted quality stock is diminishing, this is increasing the need for speculative fitouts or quality refurbishments.


Adelaide Capital Markets

Jed Harley, Cushman & Wakefield’s Director, Capital Markets SA said the Adelaide commercial market experienced similar conditions to the other major capital cities throughout 2022 albeit slightly more resilient.

“We are still witnessing periods of decreased activity, transactions taking longer to conclude, growing divergence between buyers and sellers. Towards the latter stages of the year, we saw an obvious withdrawal from major east coast and offshore capital, which resulted in local privates, syndicates and smaller scale Sydney fund managers becoming more active in the market.

“While we saw some downward pressure on pricing, the market remained resilient, with several transactions in play that will show only a modest reduction in pricing from the peak of 2021. A large proportion of the major transactions in the CBD comprised value-add office buildings, with investors looking for ways to increase returns above initial yields” Mr Harley said.

Guy Bennett, Cushman & Wakefield’s Managing Director & Head of Capital Markets , South Australia said looking forward, the Adelaide CBD has a large amount of supply coming online in 2023 and into 2024 with Charter Hall, Cbus and Walker Corp completing major office towers during that period.

“We expect this will cause owners of secondary assets (older A Grade, B and C Grade) to consider their future strategy, with major repositioning required for a lot of these buildings. We consider this will be impetus for many of these buildings to change hands. We also expect some of the better quality existing A Grade assets will see some rental growth off the back of the new builds.

“We anticipate multi-family and BTR will become a more important sector of the market next year, with several major national BTR operators already circling sites in Adelaide. Similarly, there continues to be a renewed interest from hotel and short-stay accommodation providers, with a number of new hotels and serviced apartment complexes mooted for planning application in the new year.

“Across the metro area, the market has weathered the interest rate storm quite well, albeit with yields softening slightly in response. What we have seen is the market become far more two-tiered, with prime, long lease, well-located investments continuing to transact on very tight yields, while secondary assets (vacancy, older buildings, short leases, outer locations) experienced more challenging conditions with extended selling periods and far thinner demand. We expect this trend to continue in the new year, however we anticipate demand to increase on the back of a stabilisation in interest rates as we approach the peak of the cycle” Mr Bennett said.

Adelaide Office Leasing

Adam Hartley, Cushman & Wakefield’s Director and Head of Office Leasing for South Australia is encouraged by the level of potential office relocations planned for 2023.

”2022 has seen a high number of tenants seeking better quality office accommodation that provides the amenities their clients and importantly staff require.

“The return to office conversation has only gained momentum, with small to medium enterprise leading the charge due to their nimble approach. Quality spec suites have provided a fast relocation option and are now in short supply. Larger organisations have been more strategic on what the future holds, however the direction for higher quality office space is clear.

“An increase in Adelaide CBD vacancy rates is inevitable due to the completion of multiple office towers. The outlook is for positive absorption number to increase in the 2nd half of 2023, as more businesses realise their staff to return program and aided by education providers as international students return.

“Second grade buildings have the most to gain, and proactive repositioning of aging assists will be pivotal to maintaining existing tenants and securing new tenants” Mr Hartley said.


According to Paul Huggins, Cushman & Wakefield’s Managing Director, New Zealand, 2022 has been a year of two perspectives; “An acceleration in market activity in infrastructure, commercial, healthcare and government as New Zealand’s recovery from a COVID hit in FY21 led to total revenue growth of plus 20% in Facility Management, Projects and Tenant Advisory.

Mr Huggins said the Retail and Office sectors have remained steady and demand for resizing occupancies and footplates is increasing, leading to short to medium term opportunities.

“A number of new clients were secured in FY22 with Healthcare, Local and National Government and Infrastructure sectors with growth in Project and Development Services and Tenant Services will provide a positive outlook for the next few years.

“Looking ahead to 2023, whilst there may be potential for a New Zealand economic recession, our new business and market sector mix including strong recurring revenue from long term Integrated Facility Management contracts is underpinning a positive growth forecast” he said.


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