Office leasing markets in boomtime sweet spots

By | octubre 3, 2017
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Investors have bought $67 million worth of office assets in key Sydney and Melbourne locations in the past week, as they get a foothold into the booming leasing markets.

An offshore investor has paid $25 million for the heritage-listed office tower at 332 Kent Street, Sydney, while the Hong Kong conglomerate, Glorious Sun, has paid $42 million for an eight-storey tower at 324 St Kilda Road, Melbourne.

Tim Grosmann and Graeme Russell of Savills Australia sold the Kent Street property, on behalf of Yachtsman Warwick Sherman and another private investor. The building sold on a 3.99 per cent yield, and a rate of nearly $16,000 per square metre. 

According to agents, competition among private buyers and institutions is very strong, given office vacancy along the eastern seaboard is at record low levels.

Cushman & Wakefield’s third-quarter data reveals that in Sydney vacancy has continued to decline, with the premium rate compressing 300 basis points to 9.5 per cent, while A grade is at its lowest rate  since mid-2008 of 3.6 per cent.

Sydney’s prime gross effective rents sit at $916 a square metre, a rise of 6.9 per cent year-on-year.

The major leasing deals have been Clayton Utz renewing 17,000 square metres at 1 Bligh Street; and Jobs for NSW signing on to 17,000 square metres at 11-31 York Street.

Tim Courtnall, NSW head of office leasing at Cushman & Wakefield, said the larger deals had returned to the CBD office market this quarter, after the second quarter was punctuated by smaller transactions. 

“Rental growth in the B-grade market continues to outpace premium-grade stock, but the gap is narrowing as growth slows. Tenant demand remains strong for suites and subdivided floors, especially from service industries such as legal, finance and technology,” Mr Courtnall said.

“The quarter saw major tech tenants continue to gravitate to the CBD, led by Jobs for NSW establishing their Sydney Start-up Hub, taking 17,000 square metres of refurbished space at Wynyard Green; Dimension Data securing 6000 square metres at Darling Park; and Atlassian taking additional space at 363 George Street.”

In Melbourne, prime net effective rents sit at $376 a square metre per annum, also a rise of 6.9 per cent year-on-year.

In the third quarter, landlords jostled to secure large requirements, with developers like Lendlease and Mirvac behind 12 CBD office towers under construction or approved. Major leasing deals included Recoveriescorp taking 3562 square metres and Latitude Financial taking 9744 square metres at 800 Collins Street.

Josh Langdon, director, tenant advisory group at Cushman & Wakefield, said as rental growth in Melbourne experienced a moderate softening, “we are continuing to see good options available for tenants”.

“Demand remains healthy, with major landlords vying to secure larger tenants with 12 major office towers in development or approved to proceed,” Mr Langdon said.

“We are also seeing landlords looking to pass on higher land tax and rising energy costs, leading to a spike in outgoings for tenants, particularly in the B-grade market.”

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