Outlook 2023 Australia

AUSTRALIA

KEY MESSAGES BRISBANE

SUPPLY

DEMAND

RENTS

 The redevelopment of the Eagle Street area, together with the ongoing flight to quality, will reinforce the “Golden Triangle” as the destination precinct within Brisbane’s CBD, bringing together high quality office buildings with amenity and transport infrastructure. KEY OUTLOOK

 No new supply is forecast to enter the Brisbane CBD market before an above average 80,000 sqm across two projects expected in 2024.The projects are 50% pre-committed.  After 2022, new supply is forecast to decline to an average of nearly 45,000 sqm per year for the next four years.

 After rebounding from COVID lows in 2021, net absorption is expected to reach 55,000 sqm in 2022 before slowing to 20,000 sqm in 2023.  As a result of no new supply in 2023, vacancy is expected to decline to 13% by the end of that year and then largely track sideways over the next few years.

 After declining around 5% in 2021, prime gross effective rents are forecast to grow by 3% in 2022, and then average around 3% per annum over the next five years.

NEW SUPPLY (SQM) BRISBANE

NEW SUPPLY

90,000

 One major project completed in 2022, Heritage Lanes at 80 Ann Street, delivering 60,000 sqm to the premium grade market.  The 45,000 sqm development at 205 North Quay has been fully pre-committed and is currently under construction with delivery expected in 2024.  45,000 sqm at 360 Queen Street is now expected to be delivered in Q2 2025.  Dexus’s Waterfront Brisbane is nearing construction start, with completion expected 2027.

FORECAST

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

2020

2021

2022F

2023F

2024F

2025F

2026F

Source: Cushman & Wakefield

BRISBANE

DEMAND & VACANCY

NET ABSORPTION (SQM) AND VACANCY RATE (%)

FORECAST

16.0%

60,000

 Following a contraction in office demand in 2020, it is estimated the Brisbane CBD will see an additional 26,500 new office employees over the next decade, requiring roughly 265,000 sqm of office floorspace.  Positive demand and limited supply, suggests vacancy will drift lower.

15.5%

50,000

15.0%

40,000

14.5%

30,000

14.0%

20,000

13.5%

10,000

13.0%

0

12.5%

-10,000

12.0%

-20,000

11.5%

2020

2021

2022F 2023F 2024F 2025F 2026F Net Absorption Vacancy Rate

Source: Cushman & Wakefield

BRISBANE

RENT GROWTH

RENT (AUD/SQM/YR) AND RENT GROWTH (% PER ANNUM)

FORECAST

4.0%

540

 Rent growth is expected to return to positive territory in 2022 at 3.5% following a 5.5% decline in 2021.  With no new supply entering the market and declining vacancy, rental growth is forecast to increase by 3.5% in 2023 to reach AUD475 sqm/yr.  After this time, rent growth will likely stabilise and average a little below 3% per annum.

3.0%

520

2.0%

500

1.0%

0.0%

480

-1.0%

460

-2.0%

-3.0%

440

-4.0%

420

-5.0%

400

-6.0%

2020

2021

2022F 2023F 2024F 2025F 2026F AUD/SQM/YR Rent growth (%)

Source: Cushman & Wakefield

MELBOURNE

SUPPLY

DEMAND

RENTS

KEY OUTLOOK

 After 550,000 sqm of new and refurbished stock was added over 2020 and 2021 combined, the outlook for new supply in the CBD is comparatively subdued.  After 2022, new supply is forecast to decline to an

 Employment growth is

 Prime Melbourne CBD office rents returned to growth in 2022. The growth was supported by a rise in face rent on the completion of new developments. Net incentives have also compressed a little from 40.5% to 39.5% over 2022 as the market reopened following the pandemic.

 The post-pandemic recovery has supported a cyclical upswing in tenant demand for Melbourne's CBD office market. Growth is expected to continue, and more limited supply should support ongoing rental growth.

expected to remain positive, however, the rise in flexible working and downside economic risks may limit demand growth.  Positive demand and limited supply should result in the vacancy trending lower over the next few years.

average of 82,250 sqm per year for the next four years.

MELBOURNE NEW SUPPLY

NEW SUPPLY (SQM)

400,000

 After 550,000 sqm of new and refurbished stock was added over 2020 and 2021 combined, the outlook for new supply in the CBD is comparatively subdued.  Most of the stock expected to enter the market in 2022 is refurbishment, with only Wesley Place in Lonsdale Street to provide a new development, which is fully pre-committed.

FORECAST

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

2020

2021

2022F

2023F

2024F

2025F

2026F

Source: Cushman & Wakefield

MELBOURNE DEMAND & VACANCY

NET ABSORPTION (SQM) AND VACANCY RATE (%)

FORECAST

14.0%

80,000

 Office employment is expected to expand in the Melbourne CBD over 2022 as the economy continues to reopen from pandemic induced restrictions.  Employment growth is expected to remain positive, however, the rise in flexible working and downside economic risks may limit demand growth.  Positive demand and limited supply should result in the vacancy moving lower over in 2022 before stabilising.

12.0%

60,000

10.0%

40,000

8.0%

20,000

6.0%

0

4.0%

-20,000

2.0%

-40,000

0.0%

-60,000

2020

2021

2022F 2023F 2024F 2025F 2026F Net Absorption Vacancy Rate

Source: Cushman & Wakefield

RENT (AUD/SQM/YR) AND RENT GROWTH (% PER ANNUM) MELBOURNE RENT GROWTH

FORECAST

600

15.0%

 Prime Melbourne CBD office rents returned to growth in 2022.  The growth was supported by a rise in the average face rent on the completion of new developments.  Net incentives have also compressed a little from 40.5% to 39.5% over 2022.  Looking forward, demand growth and limited supply should support ongoing rent growth.

500

10.0%

400

5.0%

300

0.0%

200

-5.0%

100

-10.0%

0

-15.0%

2020

2021

2022F 2023F 2024F 2025F 2026F AUD/SQM/YR Rent growth (%)

Source: Cushman & Wakefield

KEY MESSAGES SYDNEY

SUPPLY

DEMAND

RENTS

KEY OUTLOOK

 Supply increased by more than 205,000 sqm in the Sydney CBD over 2022, above the average since 2000 of around 135,000 sqm.  While supply in 2023 is expected to be limited, completion of above station developments associated with the Sydney Metro will lift supply in 2024. Longer term, there is a significant pipeline of potential projects which will depend on pre-commitments.

 Office related employment in Sydney expanded strongly as the economy reopened from the pandemic.  Employment growth is forecast to remain positive over the next few years, but office demand is likely to be tempered by the increase in flexible working and a more uncertain economic outlook promoting increased business caution.

 After declining over 2020 and 2021, Sydney prime gross effective rent is expected to return to growth in 2022.  While face rents are rising, supported by a flight to quality and new developments, with vacancy expected to remain above the long-term average

 Tenant demand had been recovering following the COVID-19 pandemic and on relatively strong economic growth. Growth is now expected to moderate and there are increased downside risks to the global economy. This combined with relatively high levels of supply is likely to keep vacancy above the long term average, keeping upward pressure on incentives and restricting effective rental growth. The flight to quality suggests high grade property will outperform.

incentives are expected to remain around the 34-35% level for the next few years and limit rental growth.

NEW SUPPLY (SQM) SYDNEY

NEW SUPPLY

400,000

 More than 205,000 sqm of new and refurbished space has come online in the Sydney CBD over 2022, all of which has been completed by the end of the third quarter.  Salesforce Tower (NLA 54,000 sqm) was the major completion of the third quarter, following the prior completion of Quay Quarter Tower (88,000 sqm) in the second quarter.  Moving forward, supply is expected to be limited in 2023 before a surge in 2024, mainly associated with Metro station developments.

FORECAST

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

2020

2021

2022F

2023F

2024F

2025F

2026F

Source: Cushman & Wakefield

SYDNEY

DEMAND & VACANCY

NET ABSORPTION (SQM) AND VACANCY RATE (%)

FORECAST

150,000

14.0%

 Following a COVID induced drop in demand, employment growth and demand built as the economy reopened.  Office employment is expected to continue to expand in 2022 and over the next few years, however, net absorption will be constrained by the rise in flexible working with increasing risks to the growth outlook due to the surge in inflation over 2022 and associated rate rises.  While office demand should remain positive, relatively high levels of supply, particularly in 2024, should keep vacancy at above average levels for the next few years.

12.0%

100,000

10.0%

50,000

8.0%

0

6.0%

-50,000

4.0%

-100,000

2.0%

0.0%

-150,000

2020

2021

2022F 2023F 2024F 2025F 2026F Net Absorption Vacancy Rate

Source: Cushman & Wakefield

SYDNEY

RENT GROWTH

RENT (AUD/SQM/YR) AND RENT GROWTH (% PER ANNUM)

FORECAST

4.0%

1,000

 After declining over 2020 and 2021, Sydney prime gross effective rent is expected to return to growth in 2022.  The increase is driven by face rent growth and the completion of two new premium grade buildings, which have lifted the average prime rent.  Rent incentives, after rising sharply through the pandemic, have stabilised at around 34 to 35%.  With vacancy expected to remain at above average levels, incentives are unlikely to fall in the near term.

2.0%

980

0.0%

960

-2.0%

940

-4.0%

920

-6.0%

900

-8.0%

880

-10.0%

860

-12.0%

840

-14.0%

2020

2021

2022F 2023F 2024F 2025F 2026F AUD/SQM/YR Rent growth (%)

Source: Cushman & Wakefield

CONTACTS

RESEARCH: John Sears

TENANT REPRESENTATION: Michael Kearins Head of Tenant Representation, Australia michael.kearins@cushwake.com CAPITAL MARKETS: Josh Cullen Head of Capital Markets, Australia josh.cullen@cushwake.com

Head of Research, Australia john.sears@cushwake.com

LEASING: Tim Molchanoff Head of Leasing, Australia tim.molchanoff@cushwake.com

Asia Pacific Dr Dominic Brown Head of Insight & Analysis, Asia Pacific dominic.brown@cushwake.com

Disclaimer. The information in this material is general in nature and has been created by Cushman & Wakefield for information purposes only. It is not intended to be a complete description of the markets or developments to which it refers. The material uses information obtained from a variety of sources which Cushman & Wakefield believe to be reliable however, it has not verified all or any information and does not represent, warrant or guarantee its accuracy, adequacy or completeness. Any forecasts or other forward looking statements contained in this material may involve significant elements of subjective judgment and assumptions as to future events which may or may not be correct and are beyond the control of Cushman & Wakefield. Cushman & Wakefield is not responsible for any loss suffered as a result of or in relation to the use of this material. To the extent permitted by law, Cushman & Wakefield excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this material. All expressions of opinion included in this material are subject to change. © 2022 Cushman & Wakefield. All rights reserved.