Sydney landlords reaping higher rents
Office landlords are in the box seat, to the detriment of tenants, with prime rents rising 2 per cent in the past three months as the race for space gathers momentum, according to CBRE.
The rise, which also saw secondary rents increase 8.3 per cent, is putting Sydney on track to match or exceed rental growth pre-GFC and its highest level of rental growth in more than 20 years.
Sydney is a landlords' market with high rental growthCredit:Peter Bennetts
It comes as the Sydney metro rail is taking out space, through the demolition of buildings, and new tenant entrants, such as tech companies and co-working space operators, are demanding core sites.
This absorption had been predicted with landlords, such as DEXUS Property, saying they expected the prime vacancy rate to drop to a low of about 4.2 per cent in the 2018 financial year.
Andrew Tracey, CBRE Advisory & Transactions office, regional director, said the Sydney CBD remained Australia's most competitive office market, as demonstrated by the strong gains in rental growth year on year.
"The Sydney CBD remains fiercely competitive, underpinned by a real shortage of quality A and B-grade alternatives and strong rental growth," Mr Tracey said.
"The fact that Sydney remains tightly held due to redevelopment of assets into alternative uses also continues to support rental growth."
CBRE associate director, Research, Felice Spark, said Sydney's investment fundamentals also remain compelling, with vacancy currently at 5.6 per cent and expected to fall to 3.3 per cent by 2018.
In tandem, prime growth is running at a 23 per cent annual rate, which will further underpin growth in the market.
Ms Spark said the strong rent growth could provide another leg to yield compression in Sydney.
"This, however, may be tempered by the mood in global property markets should interest rates tighten in the US and other countries over the course of the next year," she said
Carolyn Cummins is Commercial Property Editor for The Sydney Morning Herald.
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