The absence of new office developments in 2012 is expected to drive vacancy trends, underpinning a gradual decline from the current 9.6 percent, according to Knight Frank’s Sydney CBD office market overview.
The report says tenant moves in 2012 are indicative of reshuffling without material impact on occupancy levels; however, enquiry for 2013 and 2014 requirements is more expansionary and indicates a likely pick up in net absorption beyond 2012.
Rents are expected to follow, with growth over 2012 forecast to be in line with CPI, before increasing from mid/late 2013 and into 2014 as demand conditions improve in conjunction with further tightening in the vacancy rate.
Prime core market yields average between 6.25 percent and 7.25 percent, according to the report.
Nick Hoskins, Knight Frank NSW research manager, says expectations of gradual improvement in demand in 2013 will see tenants faced with fewer options, given the next wave of development is unlikely until late 2014.
He says this is forecast to see prime face rental growth in 2013 and 2014 increase to an average of 4.5 percent per annum.
“Prime incentives are forecast to start materially reducing from mid-/late 2013 to reach 17.5 percent on a gross basis by the end of 2014. Traditionally face rent growth tends to start accelerating when incentives are below 20 percent, which indicates rental growth will be at its strongest in 2014,” Hoskins says.
“Although rents have maintained positive growth over late 2011 and the start of 2012, the pace of growth has moderated given some inconsistent demand from tenants.”
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