Demand for office space is slowly starting to recover, with a new report showing Sydney, Brisbane, Adelaide and Perth rents are moving higher.

According to Cushman & Wakefield’s quarterly Office MarketBeat, higher-quality supply, steady tenant demand and the impact of inflation have seen office rents increase over the past three months.

Cushman & Wakefield’s Head of Research Australia and New Zealand, Dominic Brown, said rents are trending higher but tenants are also becoming pickier about what they want. “We’re seeing prime CBD office rents continue their upward trajectory in most markets across Australia, with Sydney setting the pace in the new year,” Mr Brown said.

“While demand for office space in Australia’s largest office market remains stable, the time between inquiry and decision is being extended. Tenants are more discerning given the uncertain economic conditions, and incentives remain higher as a result.”

Sydney’s CBD recorded a 2.9% increase last quarter, with prime net effective rents rising from $930 to $960 per square metre, driven by new, higher-quality buildings coming online and a larger share of premium-grade buildings in the prime basket. This helped take the rolling annual increase in effective rents to 6.9%, including a 7.7% rise in face rents.

Prime effective rents in the Melbourne CBD rents remain steady and a slower return to work has kept incentives high, the report said.

Across Victoria, there was a 30% increase in occupier enquiry, as tenants leverage favourable conditions. With several significant leasing transactions in the pipeline, confidence is expected to grow over 2023 as occupiers continue to seek out high-quality accommodation to attract and retain staff, the report said.
 

During the quarter, premium gross face rents in Brisbane’s CBD jumped 2.1%, climbing from $965 per sqm to $985 per sqm. This was largely driven by the uptick in face rents while incentives remained mostly unchanged. This supported a rolling annual increase in prime gross effective rents of 10.2%, the largest increase of all states.

Cushman & Wakefield agents note that with limited supply forecast over the next three years, tighter vacancy will likely place upward pressure on rents.

Meanwhile, growth in the Perth CBD office market of 6.3% was supported by a 4.5% increase in prime net effective rents in Q1, lifting from $370 to $380 per sqm. According to Cushman & Wakefield, leasing activity is growing, particularly for pre-fitted space given rising construction costs. There are also signs that incentives have peaked during the quarter.

Adelaide CBD prime net effective rents increased by 3.5% in Q1, moving from $255 to $264 per sqm, leading to an increase of 8% over the past 12 months. Demand for quality stock remains high across the Adelaide CBD market, with the largest deals during the quarter being pre-commitments for upcoming buildings.

Cushman & Wakefield’s Research Manager Queensland, Jake McKinnon, said while we’re seeing a variation across CBD markets, around the country the market trend is clear. Demand is continuing to build in most locations, with premium buildings and inflationary conditions pushing rents higher.

“With larger tenants generally slower to commit, fitted-out speculative suites are providing the most activity among smaller occupiers. Prime quality space continues to experience solid absorption at the detriment of secondary stock.” Mr McKinnon said.