Sydney records robust office supply pipeline with 21 projects underway

These projects will yield 396,900sqm of office space.

There were five office buildings totalling 59,100 sqm that were completed in Q3 2021. According to JLL, 6 Hassall Street, Parramatta (27,400 sqm) was the largest completion and was 51% pre-committed by the Western Sydney University. The refurbishment of 570 George Street, Sydney CBD also completed, delivering 18,200 sqm to the market that was mostly uncommitted. 

The analyst added, “Only two withdrawals were recorded in the quarter. 29-41 Hutchinson Street, Surry Hills was withdrawn (2,500 sqm) for an office redevelopment. 6 Figtree Drive, Sydney Olympic Park (7,500 sqm) was withdrawn for the Sydney Metro infrastructure development. The supply pipeline remains strong with 396,900 sqm under construction across 21 projects with an aggregated pre-commitment rate of 47%.”

Here’s more from JLL:

Leasing momentum gains pace despite the recent lockdowns 

Net absorption was positive in eight out of the ten Sydney office markets that we track, as organisations continued to sign leases during lockdown. Parramatta recorded the highest net absorption figure of 45,800 sqm in 3Q21, driven by The Department of Home Affairs leasing 17,600 sqm in 101 George Street. The department consolidated out of three locations across the Sydney CBD and Parramatta. 

Positive demand of 24,700 sqm in the Sydney CBD was driven by a 35,800-sqm reduction in sublease space to 120,600 sqm (2.3% of total stock). Larger moves in sublease activity included Macquarie Bank withdrawing 4,200 sqm at 1 Shelley Street and Deloitte reabsorbing 3,800 sqm at 225 George Street. There were three large tenants (>1,000 sqm) centralising into the Sydney CBD from suburban markets. 

Effective rents beginning to bottom out 

Prime net effective rents decreased in five of the ten Sydney office markets over 3Q21. Face rents continue to hold firm (or record minor increases) while incentives rose - to varying degrees - in the Sydney CBD, Sydney Fringe and North Shore markets. Incentives are nearing their cyclical high as leasing activity gathers momentum. 

The prime yield range compressed in eight of the 10 Sydney office markets driven by strong deal evidence. Larger movement in yields included the Sydney Olympic Park/ Rhodes prime midpoint yield compressing 25 bps to 5.50%, the Sydney South and Macquarie Park markets compressing 19 bps to 5.19%, as well as the Sydney CBD prime midpoint yield compressing 13 bps to 4.57%. 

Outlook: Leasing demand expected to gain momentum 

Leasing enquiry and inspection activity remained stable throughout the recent outbreak of COVID-19 and extended lockdowns. Restrictions are beginning to ease as the vaccination rate approaches 80%. This will provide more clarity to businesses and their return to the workplace, which could support leasing activity over the short term. 

We are projecting effective rents to bottom out by year-end 2021 as elevated vacancy levels and a strong supply pipeline place upward pressure on incentives. Potential drivers of demand in the medium term include tenants taking advantage of current market conditions to relocate or upgrade into better quality office space.