Office Rent

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Government, co-workers, and other flexible office space providers, are driving the Inner Brisbane office leasing market, according to independent valuer m3property’s latest report.
The Inner Brisbane Office: September 2019 report also found the continued expansion of flexible office space providers had been a key contributor to the declining vacancy rate over the past 18 months.
It found that while vacancy would increase to circa 13.5% by the end of 2019, on the back of the completion of 300 George Street, it would continue to trend downwards to be circa 11% to 11.5% by the end of 2021.
Report author, m3property’s Director of Research in Brisbane, Casey Robinson, said lease renewals had more than doubled as a proportion of total leases, from 13% in 2017 to 30% in 2019.
"We have seen leasing activity strengthen over the past year and that has been driven by governments, the continued expansion of the co-working and flexible office space sector, and construction and engineering firms involved in major projects, as well as general growth in white collar employing industries," Robinson said.
The report forecast effective rents to continue to nudge upwards over the short-term while incentives, now entrenched in the Brisbane office market, are expected to trend downwards over the medium- to long-term, stabilising around the 25% mark.
Commercial Director at m3property, Michael Coverdale, said weaker business confidence and cost/business efficiencies were also behind a trend to reduce footprints with a number of corporates including Arrow Energy, Shell, Cardno and Insurance Group Australia downsizing at lease renewal.
"The growth in flexible working space options, which is providing organisations with the ability to expand and contract space requirements as required, is another important factor," Mr Coverdale added.
He said there was also evidence to show reducing footprints had driven tenants to seek newer buildings especially those that offered more flexible work spaces.
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Government and co-workers drive Brisbane leasing market, according to report 

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Sydney and Melbourne have again topped the global list for office rental performance, taking out the 2 top spots for annual prime office rental growth in the third quarter.
JLL’s latest <a href="http://www.jll.com/gmp/Global-Office-Index" target="_blank" style="font-size: 12.16px;">Global Office Index for Q3</a> shows Sydney way out in front globally in number one spot for annual growth between Q3 2016 and Q3 2017.  Sydney recorded 30.1% annual growth in prime rents.  Melbourne recorded 17.3% year-on-year growth for the same period, pushing it to the second global spot.
US cities came in next, with San Francisco Peninsula in third at 12.9% annual rental growth, New Jersey at 12.2% and Portland in 5th spot at 10.4%.
Click here <a href="https://www.propertyobserver.com.au/images/2017/11/29/Global%20office%20index.jpg" target="_blank">to enlarge.</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/29/Global%20office%20index.jpg" alt="">
JLL’s Head of Office Leasing – Australia, Tim O’Connor said, “Sydney has consistently featured in the Top 10 Global performers rankings for the past 5 years and Melbourne for the past 2 years.
“Two years ago, Sydney ranked number one, while Melbourne was ranked fifth. While the Sydney story has continued on the back of centralisation, stock withdrawals and growth from the technology sector in particular, Melbourne is now following hot on the heels.
“The sharp reduction in vacancy that precipitated the upward pressure in Sydney and Melbourne rents has been amplified by the lack of available new supply coming on line in the short term. The number of options for larger space users in existing stock now means demand will be expressed through additional pre-commitment activity,” said Mr O’Connor.
JLL Charts below showing global rental performance over the past 2 and 5 years for comparison of Sydney and Melbourne rankings two and five years ago:
Two year global rental performance. Click here <a href="https://www.propertyobserver.com.au/images/2017/11/29/2%20year%20global%20rental%20performance.jpg" target="_blank">to enlarge.</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/29/2%20year%20global%20rental%20performance.jpg" alt="">
Five year global rental performance. Click here <a href="https://www.propertyobserver.com.au/images/2017/11/29/5%20year%20global%20rental%20performance.jpg" target="_blank">to enlarge.</a>
 <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/29/5%20year%20global%20rental%20performance.jpg" alt="">
 
JLL’s Q3 <a href="http://www.jll.com/gmp/Global-Office-Index" target="_blank">Global Office Index</a> states that rental growth for prime offices across the 125 major markets covered by the JLL Global Office Index continued to pick up pace in Q3 2017, rising by 2.7% year-on-year. 
This was significantly above the 10-year average growth of 1.6%.
Momentum is expected to continue with above-average increases in 2018, with a projected uplift of 3% for the full year 2017 and 2.3% globally next year. 
JLL Head of Research – Australia, Andrew Ballantyne said, “Sydney and Melbourne effective rental growth was in double digit territory over 2016 and 2017. We expect that effective rental growth will ease back from this rate in 2018. 
“Nevertheless, Sydney and Melbourne effective rental growth is projected to remain above 7% in 2018 with the potential to be even higher if the competition for space exerts further downward pressure on leasing incentives,” said Mr Ballantyne. 
JLL’s Victorian Managing Director, David Bowden said, “Melbourne’s rental growth story has been strengthening since mid-2016. 
“Limited new supply and strong office sector demand have combined to put significant upward pressure on face rents. Asset owners took a while to adjust their incentive expectations however these started coming down at the end of 2016. 
“Melbourne’s CBD office market is benefiting from strong population growth which is fuelling business expansion in a diverse range of sectors. In 2016, the leasing market had the highest net absorption since 1978 and has remained strong in 2017, dominated by small business expansion which has accounted for over 63% of office sector demand. 
“New rental benchmarks have been set this year for both existing assets and for the new stock due to come to the market over 2018 – 2020,” Bowden said.
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Sydney and Melbourne rank top two globally for office rents growth: JLL

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A small, neat and affordable office suite Sydney’s Pitt Street has recently been leased.
The office space, <a href="https://www.commercialpropertyguide.com.au/property/254341/leased/suite-502-250-pitt-street/sydney-nsw-2000/offices/" target="_blank">Suite 502/250 Pitt Street</a>, was last advertised for rent for $260 per week plus GST, according to CoreLogic RP Data.
The open plan office has a floor area of nearly 18 sqm, has timber floors and a high ceiling.
The leasing agents were First National’s Simon Boroudjani and Narek Alayan.
The property changed hands in May this year for $310,000, Corelogic RP Data showed.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/07/26/PittSt2.jpg" alt="">
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Small, affordable office suite in central Sydney leases in quick time

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Landlord-favourable markets have allowed Sydney and Melbourne CBD office markets to record their strongest rental growth in over five years, according to real estate services firm Cushman and Wakefield's latest report. 
Their MarketBeat report series for Brisbane, Melbourne and Sydney CBD office markets reveals that growth in service sector employment is driving strong demand in Sydney and Melbourne, but Brisbane is yet to feel the effects. 
Above average economic growth in New South Wales of 3.5% over the past year, compared to trend of 3.1%, has continued to fuel demand for office space. Vacancy has remained tight despite an injection of new supply to Sydney CBD in the first half of 2016, including international Tower 3 and 200 George Street.
“Enquiry levels have been very high in Sydney. When combined with limited vacant space has resulted in gross effective rents rising over 6% this quarter. This is the strongest quarterly gain we have seen in Sydney since 2008,” said Tim Molchanoff, head of Office Leasing.
 <img src="/images/2016/07/01/Screen%20Shot%202016-07-03%20at%2011.58.16%20PM.png" alt="">
<img src="/images/2016/07/01/Screen%20Shot%202016-07-03%20at%2011.56.13%20PM.png" alt=""> 
While CBD office rental growth has been stronger in Sydney, Melbourne's CBD is also experiencing rising demand with no new stock added in Q2 and vacancy below the long-run average. The landlord favourable market has resulted in prime net rents rising 3.3% in Q2, the strongest quarterly rise since 2011.
 <img src="/images/2016/07/01/Screen%20Shot%202016-07-04%20at%2012.03.31%20AM.png" alt="">
 <img src="/images/2016/07/01/Screen%20Shot%202016-07-04%20at%2012.01.51%20AM.png" alt="">
In contrast, rents in Brisbane eased further over the quarter. The market is set to experience double the long-term average new supply in 2016, with over 133,000 sqm expected over the year. While this new supply will keep direct vacancy at near record levels, much of the impact has now been priced into prime market rents.
“We estimate that the market is now at, or near, the bottom of the cycle. Although there are green shoots of recovery such as ongoing employment growth in the finance sector, it will likely take some time for a significant tranche of this current vacancy to be absorbed," said Dr Dominic Brown, head of Australia &amp; New Zealand Research.
 <img src="/images/2016/07/01/Screen%20Shot%202016-07-04%20at%2012.09.12%20AM.png" alt="">
<img src="/images/2016/07/01/Screen%20Shot%202016-07-04%20at%2012.05.28%20AM.png" alt="">
 
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Sydney office rents surge ahead in Q2 2016: Cushman and Wakefield

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GUEST OBSERVER
There is a big difference in most world cities between rents paid by a creative or digital scale-up and a hedge fund, although the gap is closing. In June 2015 the total annual office rent paid for each member of staff in a hedge fund averaged $22,399 across the 12 world cities covered in this report. This compares to $10,453 per person for a small digital scale-up or creative company, which represents just 47% of the financial sector office rent. This ‘digital discount’ has eroded since 2008. At the end of 2008 the digital and creative industry paid, on average, 42% of what a hedge fund would pay in rent.
The difference between these rents clearly reflects a different scale of revenue between a financial company and a creative company, but we expect the gap to continue to close. This is because the size of the digital and creative sector is growing faster than the finance industry in many of the world cities we monitor, meaning rental growth is higher too.
Meanwhile, it takes time for the nature and location of office stock to change from the type of large, floor-plate corporate premises required for banking to smaller, flexible and altogether more dynamic spaces required by creative and digital occupiers. This means that scarcity value also increases rents.
In some cities the importance of the digital and creative industry would already seem to have overtaken finance. In Sydney, for example, creative industry companies are paying more per person for office rents than finance companies are. Local supply and demand factors will clearly have an impact here. Relatively low demand for financial offices in Sydney means the city has some of the cheapest rents for this sector among our world cities, paying well below the world average per person.
Globally, the average growth of office rents we monitor among our 12 cities was just 1.7% between December 2008 and June 2015. But this average disguises a big difference between the financial sector and creative and digital sector. While office rents in the financial sector fell by an average of 1.8%, the creative sector offices saw growth of 8.6% over the same period. 
 
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Yolande Barnes is director, Savills World Research Team and can be contacted <a href="https://www.savills.com/research/" target="_blank">here</a>. 
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