CBDs make a speedy recovery
It became popular during the pandemic to talk about office prices and rents plummeting. But that bore little relation to the truth, says Knight Frank chief economist Ben Burston.
“There was a modest reduction in value of about 2 per cent by mid-2020 but Sydney capital values, for instance, have risen 4.4 per cent over the past two years. So they’ve recouped that drop and returned to growth.
“It’s a similar story across most of the other markets, and headline rents have generally been stable although lease incentives are being granted to secure new tenants. Melbourne was probably impacted a bit more but they also had a lot of new supply coming onto the market.”
Over the past year, he says, CBD office capital values have grown 5.3 per cent in Canberra with the average prime office rent per square metre now at $440, by 4.4 per cent in Sydney with rent at $1200, by 3.9 per cent in Melbourne with $710 rent, and by 1.1 per cent in Brisbane at $620 per square metre.
Cushman & Wakefield head of office leasing Australia and New Zealand Tim Molchanoff says COVID-19 caused a mild shift in face rents across the nation’s major office markets, although they did stay firm in Sydney.
“Now we are a lot more match-fit in dealing with COVID and work life is adjusting,” he says. “We are experiencing an office market recovery with face rents above pre-pandemic levels. Net face rents are up between 1 and 5 per cent for higher-grade buildings in the major CBDs as against pre-pandemic levels, while effective rents have decreased due to a rise in incentives.”
Colliers national director of research Joanne Henderson believes average prime CBD yields have, at the same time, tightened by 20 basis points over the last two years to sit at 4.95 per cent on a weighted average basis across CBD office markets.
“The uncertainty felt early in the pandemic has been unravelling … as it becomes more apparent that the underlying fundamentals underpinning the office sector have been more resilient than initial expectations,” she says.
