National office market leasing defies the odds

National office leasing is defying the odds with demand for space showing strong resilience despite challenging global business conditions, with deals being inked showing a rise in the first quarter.

New CBRE data reveals for Sydney that in the first quarter of this year, there were 121 tenant enquiries a rise of 25 per cent on the previous quarter.

CBRE’s Sydney CBD first quarter figures report also highlights that a flight to quality has gathered pace, underpinning a quarterly 1.3 per cent increase to $1356 per square metres in prime net face rents in the city core.

Notwithstanding this, CBRE’s NSW research manager Thomas Biglands noted that increasingly limited space options could lead some occupiers to rethink their decisions to move in the near term.

“Entering 2023, available space is located in a few lower-tier properties or in disaggregated tranches within higher-grade buildings,” Biglands said.

Sydney’s Salesforce Tower is almost fully leased

“Given the lack of large tranches of contiguous space in premium buildings in the core, many occupiers may instead look to renew or extend leases in their current space and take advantage of the elevated incentives currently being offered to upgrade their existing fit-outs.”

In Melbourne, the latest building to open with its new tenant is Charter Hall’s Wesley Place at 155 Little Lonsdale Street.

It is the new AFP Southern Command headquarters comprising 23,000 square metres of net lettable area across 20 levels. The building will support and enhance the AFP’s operations in Victoria, meeting the evolving needs of federal policing in Victoria and Tasmania.

Charter Hall chief executive David Harrison said the opening of the Southern Command headquarters marks the completion of the $1.6 billion Wesley Place precinct, “which was carefully designed to transform the way people work, connect and socialise”.

CBRE’s report also said, for Sydney, the supply gap won’t be plugged in 2023, with data pointing to minimal stock entering the market this year after a three-year, 450,000 square metre supply wave, which included the completions of Quay Quarter Tower and Salesforce Tower.

With the next supply waves not due until 2024 and 2027, this should help to reduce the city’s overall vacancy rate, as will the level of pre-leasing demand in new development projects.

Charter Hall’s new Wesley Place development in Melbourne’s CBD.

CBRE’s NSW director of office leasing, Tim Courtnall, said the limited supply pipeline for 2023 should allow the overall vacancy rate to compress.

“We are experiencing unprecedented demand for new product with strong pre-leasing within the developments to be delivered in 2024,” Courtnall said.

“The flight to quality story is more relevant than ever, and this will allow the market to maintain a healthy supply/demand balance for the next few years.”

On the rental front, the report highlights that net face rents and incentives are continuing to move in opposite directions, while net face rents increased by 1.3 per cent quarter-on-quarter, and 6.3 per cent year-on-year incentives continued to trend upwards in the first quarter with CBD core prime incentives sitting at 33.2 per cent.

“Incentives are expected to remain sticky over the next year, although we are experiencing some decreases in the premium-grade buildings in the core,” Mr Courtnall said.

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