Global headwinds trim CBD demand

Sydney’s high exposure to turbulence in global financial markets has curbed current demand for CBD office space, according to the Property Council of Australia’s latest Office Market Report.

Weak demand over the past six months has seen the vacancy rate across the CBD rise from 9.3 percent to 9.6 percent.

“Sydney has taken a short-term hit as the financial services sector feels the weight of global woes,” NSW Executive Director Glenn Byres says.

“But Sydney’s supply pipeline over the next two years is modest and well below the historical average.

“Just 45,279sqm of refurbished stock is due to enter the market in 2012. Projects comprising 104,859sqm are scheduled to be completed in 2013 with 51 percent pre-already committed.”

Net absorption across the Sydney CBD totalled 8,122sqm in the six months to January 2012. Strong demand for A Grade stock – equalling 50,972 – was offset by a fall in demand across all other grades.

Supply additions in the past six months totalled 81,416sqm – with 59,990sqm withdrawn from the market.

The vacancy rate for Premium floor space rose from 2.5 to 7.4 percent – due largely to 29,090sqm of additional supply.

A Grade stock performed best – with 50,972sqm of net absorption resulting in the vacancy rate falling from 9.9 to 8.9 percent.

Demand dropped across the B Grade, C Grade and D Grade segments – though C Grade had a steady vacancy rate at 13.1 percent.

Mr Byres said 45,279sqm of new stock is due to enter the market in 2012, a further 104,859sqm in 2013 and 250,860sqm in 2014 and onwards.

Contacts:

Glenn Byres, NSW Executive Director, 02 9033 1904 or 0419 695 435
John Nguyen, National Research Manager, 02 9033 1943 or 0410 449 210

Analysis & commentary, Sydney CBD, Jan 2012

Headline comments: 

• Sydney CBD posted an increase in vacancy in the six months to January 2012 
• Only the A Grade segment experienced positive demand over the period 
• There is a steady stream of space due to come online over the next 2 years

Vacancy analysis: 

• Vacancy in the Sydney CBD office market increased slightly from 9.3 percent to 9.6 percent 
• There were supply additions of 81,416sqm and net absorption of 8,122sqm 
• 59,990sqm of space was withdrawn over the period

Premium: 

• Vacancy increased from 2.5 percent to 7.4 
• There were 6,457sqm of withdrawals 
• 29,090sqm of supply additions and -12,826sqm of net absorption were posted over the period

A Grade: 

• Vacancy decreased from 9.9 percent to 8.9 percent 
• There was 50,972sqm of net absorption 
• 47,403sqm of space was added over the period while 10,929sqm was withdrawn 

B Grade: 

• Vacancy decreased from 10.5 percent to 10.1 percent over the period 
• There were 24,569sqm of withdrawals 
• There were 1,000sqm of supply additions while net absorption was -14,273sqm 

C Grade: 

• Vacancy remained steady at 13.1 percent 
• Supply of 3,923sqm and net absorption of -10,622sqm was effectively negated by 16,175sqm of withdrawals

D Grade: 

• D Grade vacancy increased from 6.7 percent to 8.4 percent due to demand of -5,129sqm 
• 1,860sqm of space was withdrawn over the period

Future supply: 

• 45,279sqm of partially refurbished stock is due to enter the market in 2012 with less than 5 percent pre-commitment 
• 104,859sqm of projects are scheduled to be completed in 2013 with 51 percent pre-commitment 
• 250,860sqm is due to come online from 2014 onwards 
• A total of 205,000sqm of space is mooted

Key market indicators, Sydney CBD (aggregate)

For full analysis and coverage, visit the dedicated website: www.officemarketreport.com.au