Which Australian city recorded its largest quarter of net office absorption this year?

Net absorption hit 20,000sqm in Q3.

Australia’s office property segment has been dominated by smaller occupiers so far this year. According to a report by Dexus Research, this has led to moderately positive net absorption, constrained somewhat by the larger users. 

The report adds: Sydney recorded -33,000sqm absorption in Q3 2022, largely driven by Westpac vacating 16,000sqm at 275 Kent Street. Melbourne CBD recorded the largest quarter of net absorption in a year with 20,000sqm. Brisbane and Perth have both recorded consecutive quarters of positive net absorption. 

Here’s more from Dexus Research:

Australian office markets are in varying stages of the supply cycle. Sydney and Brisbane are expecting relatively few office completions over the next 24 months. This should provide scope for a reduction in vacancy rates if demand is positive. Strong levels of new supply in Melbourne (174ksqm in FY23) will likely slow down the recovery in vacancy rates. 

Major markets have seen modest rent growth, but incentives have also increased. Face rents have been growing across all CBD markets. Face rents are growing the fastest in Sydney CBD at 5.3% year-on-year. In Sydney, incentives increased from 21% in Q4 2019 to 34% in Q3 2022 representing 13ppts expansion. Prime Melbourne office has seen a 10ppts expansion in incentives for the same period. Incentives in Parramatta have risen substantially, driven by large levels of new supply, and resulting in a decrease in net effective rents of 18% year-on-year. 

There have been early signs of cap rate expansion in response to an increasing cost of capital. While transaction evidence is still thin, JLL Research estimate cap rates increased by 20bps in Sydney CBD and 10bps in Melbourne CBD in Q3 2022. Further expansion is expected as transactions filter through.