Vacancy compression continued in H2 2018
In January the PCA recorded the Sydney CBD vacancy rate at just 4.1%, down from 4.6% in July 2018. A Grade vacancy remained low at just 3.6% – its equal lowest rate in a decade. Market fundamentals remain firmly landlord favourable with stock hard to come by, although tenant demand appears to be past its peak. Cushman & Wakefield forecast overall vacancy to drop to between 3%-4% over the coming years.
Prime gross effective rents pass $1000/sqm
Rent growth continued to be underpinned by the low vacancy rate. After a period of subdued growth, Premium rents have now recorded multiple quarters of solid rent growth. As a result, Prime gross effective rents have grown 8.0% year-on-year (YoY) to $1030 per sqm p.a. B Grade gross effective rents increased 7.4% YoY to $810 per sqm p.a. Incentives remained stable at 20% in Prime grade and 19% in B Grade.
Premium-A Grade spread to broaden
Due to strong A Grade rental growth compared to Premium in recent years, the Premium-A Grade rental spread (gross effective) has compressed and now sits at the low end of its range. As a result, prospective tenants have found relative value in Premium Grade stock. With Premium vacancy now below 4%, down from 12.5% in 2017, the Premium-A Grade spread is expected to broaden again.