Investa: Office Market Synchronisation To End In 2019


Source: NAB & Investa Research

In its October 2017 Office Market Report released today, Investa highlights that while current conditions in Australia’s major CBD office markets are positive, there are a number of challenges to face in the coming years. While the Sydney and Melbourne office markets in particular are performing strongly, significant variation in office development activity across these two markets will drive the largest divergence in market conditions since the late 1990’s.

The report states that office development in both the Sydney and Melbourne CBD markets are responding to prevailing tight leasing conditions. However, the magnitude of development in Melbourne will present it with the challenge of absorbing the equivalent of almost 21⁄2 times Sydney’s International Towers at Barangaroo from 2019-2022.


Source: PCA & Investa Research

David Cannington, Head of Research and Strategy, Investa said: “A positive economic outlook will continue to support solid underlying demand for office space in the coming years, however Australia’s office market conditions have historically ebbed and flowed on development cycles. Favourable prevailing conditions in both Sydney and Melbourne’s office markets are driving strong rental growth and capital returns.

A moderate development cycle in Sydney is expected to prolong the strong market conditions for another five years. However, Melbourne’s office market will soften in the coming years on the surge in office development.”


Source: PCA & Investa Research

The report outlines that the increase in office supply will go some way to easing the affordability pressure of rental growth on office tenants. Sydney and Melbourne office rents have increased sharply over the past two years reflecting strong office market conditions, to be almost 20% higher. In the coming cycle, diverging office market conditions will drive variable rental affordability, which is likely to factor in some tenants leasing decisions.

Mr Cannington said: “We expect underlying demand for prime office space in Sydney CBD will remain strong for the next 5-10 years. However, limited supply combined with tight affordability could influence some tenants to consider locating in comparable markets where a Sydney CBD move may not ‘stack up’. This could provide a boost to office absorption in markets such as North Sydney, Melbourne CBD and Brisbane CBD.”


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