The CBRE Q4 Office Market View report, which revealed Sydney delivered a rental growth of 5% at the end of 2016, continued with its analysis of the nation and provided a forecast for Australia's office markets in 2017.
One City To Lead Them All In Office Market Stats]CBRE Associate Research Director Felice Spark said national office vacancy peaked at 10.9% at the end of 2016, and provided the state-by-state analysis before offering some predictions for the coming year.
The CBD vacancy is forecast to have declined to 6.3% at the end of December 2016, with further declines expected this year given the modest supply outlook (with just 8,000 square metres of space anticipated to come on line as part of the Rialto regeneration).
However, supply is expected to pick up again in 2018 with the completion of 664 Collins and One Melbourne Quarter. During Q4 the Melbourne CBD recorded its fourth consecutive quarter of positive growth in net effective rents, with year over year growth being 7.2%
Ms Spark said economic improvement and limited supply over the medium term would drive the first green shoots of recovery.
"Despite this, CBRE’s forecasts are for CBD vacancy to remain elevated in the short term, with only a gradual recovery in underlying tenant demand and at least two further major tenant relocations to the near city."
Perth is expected to reach its cyclical bottom during 2017, with leasing activity having picked up and the pace of rental decline having eased over the course of 2016.
Ms Spark said Q42016 was the first quarter of no rental rate softening following 14 consecutive quarters of decline.
"Lower rental rates and record high incentives have been driving tenant migration from suburban markets to the CBD in a flight to quality and this has seen the level of CBD leasing activity rise."
After three years of declining white collar employment, Ms Spark said the market appeared to have entered into a strong growth phase, with sustained job growth likely to translate into positive demand for space.
"With Tuggeranong Office Park the only development underway, CBRE is forecasting the Canberra vacancy will decline to 7.8% by 2020.
"Tightening vacancy in the Civic precinct and the lower vacancy outlook is expected to lead to 5.5% compound annual growth in effective rents over the next three years," she said.
Leasing activity, which has been slow over the past 12 months, is expected to see an upturn over the next two years, with a higher volume of leases coming up for expiry.
"The increase in vacancy over the past four years, to an estimated 16.2% in December 20167, has caused landlords to drop rents and increase incentives, enabling tenants to affordably move from lower to higher quality accommodation," Ms Spark said.
"This has resulted in the prime market outperforming the secondary office market."
CBRE data highlights that Sydney CBD net effective rents grew 25.5% in 2016, outpacing other metropolitan markets and also recording Sydney’s highest net effective rental growth in more than 20 years. This rapid growth had broadly made up for the effective rental declines recorded between 2013 and 2015, with further increases forecast this year.