Sydney office rents surge on tumbling incentives
B-grade office rents in the Sydney CBD rose an incredible 60 per cent in real terms in 2016 as landlords reined in incentives amid strong demand and a lack of available space, according to Savills Australia.
The real estate agents calculated that effective rents – the discounted rate tenants pay once incentives such as rent-free periods have been factored in – rose to $532 a square metre in December 2016, up from $332 in December 2015.
Over this period, average incentives almost halved from 30 per cent to just 18 per cent. Excluding the impact of falling incentives, B-grade "face" rents rose 28 per cent to $678 per sq m over 2016.
Effective rents surged 60 per cent for B-grade office towers in Sydney in 2016. Rob Homer
Effective rents also rose sharply for premium grade (up 26 per cent) and A-grade office (up 48 per cent) space as compulsory acquisitions of buildings to make way for the new metro train stations or withdrawals of buildings for conversion to apartments or hotels forced displaced tenants to compete for a shrinking pool of available space.
In the secondary office market, 39,000sq m of space was withdrawn in 2016 for apartment or hotel conversion.
"The scarcity of secondary space has driven up both face and effective secondary rents and has caused a similar effect, albeit more muted, in the prime market as tenants are forced to upgrade," said Tony Crabb, Savills Australia national head of research.
"Looking forward, we anticipate that net effective rents will continue to increase, particularly for secondary and A-grade accommodation. This will be a function of continued demand from displaced tenants, the ongoing shortage of secondary stock and the ongoing effect of declining incentives," he added.
Savills national head of office leasing Rob Dickins said tenants would have only a modest choice of options for prime accommodation in 2017 as some backfill space becomes available.
"We estimate approximately 102,400sq m will be released this year. However, about two-thirds of this space is pre-committed," Mr Dickins said.
"The majority of the 21,750sq m of new supply entering the market is also pre-committed, such as the 15,000sq m Darling Harbour Live building which CBA will occupy," he added.
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Commercial
Fetching latest articles