Outlook 2023 Australia
KEY MESSAGES SYDNEY
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.
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