In the fourth annual Cushman & Wakefield Office Leasing Trends and Outlook Survey, landlord and tenant representatives’ views of the Sydney, Melbourne and Brisbane office markets were measured. The report highlights both the latest thinking on markets and notes how opinions have evolved over the past 12 months.
Amidst shifting economic and business confidence conditions both tenants and landlords will require careful strategic adjustments in order to maximise their outcomes. We expect to see tenants become increasingly assertive in their negotiations, whilst landlords have the opportunity to create some real points of difference that separate them from the pack.
With Melbourne’s big supply pipeline on the doorstep of delivery, we expect to see some significant tenant movement and both tenants and landlords capitalise on the new market conditions. Sydney will remain a landlord favourable market with rental growth to continue, but the downgrade in confidence and economic conditions is expected to drive more flexibility in other lease considerations. Off the back of strengthening economic conditions and demand Brisbane is forecast to continue to see solid rental growth and improving conditions for landlords.
KEY CHANGES FROM LAST YEAR
- Both Sydney and Melbourne are becoming more tenant favourable, whilst Brisbane is becoming more landlord favourable.
- Rental growth predictions in Sydney and Melbourne have been downgraded from last year.
- Expected demand from professional services and finance and insurance failed to eventuate in Brisbane.
- End of trip facilities moved back to a Tier Two attribute, however, were cemented as a key part of office amenity.
MARKET CONDITIONS AND OUTLOOK
- Business confidence in Brisbane continued to climb for the third consecutive year and is now the highest of the three cities.
- Confidence that Melbourne will be a landlord friendly market in the year ahead has dropped from over 75% of respondents in 2019 to less than 50% in 2020.
- Vacancy rates in Sydney and Melbourne are expected to ease slightly to around 5%, still significantly below the long term averages. In Brisbane, vacancy is anticipated to decline to around 10%.
- Despite the anticipated swing in favour of tenants, Melbourne effective rents are still forecast to increase. In Sydney, only around 60% expect effective rents to increase in 2020, while almost 80% predict further rent increases in Brisbane.
NAVIGATING THE DIVIDE
- Softening business conditions in Sydney have left tenants more assertive when negotiating face rents.
- Both Sydney and Melbourne landlords increased their flexibility on incentives.
- In 2019 the Brisbane market turned a corner by recording its first significant effective rental growth since 2012. Landlords firmed their position behind improving conditions and outlook.
Perceptions of the state of the Australian economy softened in 2019, with results some of the weakest in the four-year history of the survey. Respondents for each city all lowered their view of the strength of the national economy; however, Sydney’s respondents were most pessimistic. Predictions of Sydney’s business confidence were the lowest of the three cities and the lowest in the history of the survey. Confidence in Melbourne also fell, though in contrast, business sentiment for Brisbane has now risen for three consecutive years and is now the highest of the three cities.
Despite softening conditions for tenant demand, with vacancy rates in Sydney and Melbourne remaining near multi decade lows, respondents indicated that both the Sydney and Melbourne markets continued to favour landlords. The above average vacancy rate in Brisbane ensured that the market remained tenant favourable. Looking forward, and in line with respondent views on business confidence, both Sydney and Melbourne are expected remain landlord favourable, but move toward more neutral market conditions. Brisbane is also anticipated to make a shift toward more neutral market conditions, although should remain a tenant favourable market.
The above is an excerpt from the 2020 Office Leasing Trends & Outlook report. To read the full report, download it here.