Parramatta Blog

QUALITY VS QUANTITY IN SYDNEY’S OFFICE MARKET

In an effort to lure back employees in the wake of the epidemic, businesses are migrating to higher quality office accommodation at a faster rate than other office space. Rents and vacancy rates for secondary offices will be hit harder and longer than prime office space by the impact of COVID-19 on working habits, as tenants take advantage of rental incentives to move up the property ladder.

The take-up of prime office space accounted for around 95 per cent of CBD leasing activity in the first half of 2022. Sydney CBD prime office rents rose at annualised rates of 9 percent respectively, during the first half of 2022. The annualised growth rate for all other major Australian CBD markets were practically twice as low, being at 5 percent or less.

The greatest vacancy rates in Australia outside of Melbourne's St. Kilda Road are found in North Sydney and Parramatta, where they are currently hovering around 19 per cent. Nevertheless, some of that growth is the result of rising inflation. Effective rents may increase somewhat when incentives soften, but actual rents are still declining after inflation is taken into account.

While COVID-19 might decrease the overall demand for workspace, it will also push businesses towards better offices, with hopes that their employees will come into the office instead of easily just working from home.

The flight to quality has certainly been a significant factor in our commercial market during recent times. With the oversupply of office space, even prior to the pandemic, the move of large tenants out of older offices and into higher grade buildings has left a number of significant holes in the market and has further increased vacancy rates.

Raine & Horne Commercial estimate over the next year, secondary office space will rebound as we see landlords investing in new lobby experiences, end-of-trip facilities, and floor upgrades, to try to retain or attract tenants back. With or without these improvements, the office market will recover although it will take time.

*Written by Jayden Ayoub | Commercial Sales & Leasing