Office face rents in the Brisbane and Perth CBDs jumped 6% and 4.5% during the final quarter of 2022 as a flight to quality and CPI uplift support face rent growth.
Cushman & Wakefield found the Brisbane CBD office market experienced its largest quarterly rental increase in over ten years in Q4 2022.
Australia’s two largest CBD office markets, Sydney and Melbourne, remained active during Q4, however, they were more circumspect amid an uncertain outlook for occupiers.
As a result, rents continued to plateau in the two cities during Q4 after climbing earlier in 2022.
Cushman & Wakefield’s Head of Research Australia and New Zealand John Sears said the economic outlook and inflationary pressures were influencing demand differently in office markets around the country.
“While we saw a year-on-year rental uplift in all CBD office markets, the growth rate is now picking up in Brisbane and Perth where the flight to quality and CPI uplift among other factors is supporting face rent growth,” Sears said.
During Q4 2022, Brisbane CBD premium gross effective rents increased 6% to average $585 per sqm, driven by a 6% rise in face rents quarter-on-quarter and stable incentives at 39.5%.
This contributed to an 8.2% year-on-year increase in premium gross effective rents.
With higher inflation forecast and supply additions muted for the CBD, Cushman & Wakefield research expects to see vacancies tighten and further increases in gross face rents across all grades in the Brisbane CBD in 2023.
In the Perth CBD, quarterly prime net effective rents increased by 0.9% to average $318 per sqm.
This was buoyed by the highest occupancy across all states of 80%.
Premium grade net face rents in the CBD rose again in Q4 by 4.5%, with downward pressure on incentives.
The Melbourne CBD remained in a holding pattern, as the slow return of white-collar workers frustrated occupancy levels.
Melbourne CBD prime net effective rents were also steady at $410 per sqm, as were incentives, with premium grade recording 38%.
The recovery in Melbourne’s CBD office market earlier in 2022 helped it record the highest yearly rental growth across Australia of 6.3%.
Gross effective rents in Sydney’s CBD office market held steady in Q4 to average $915 per sqm as incentives crept higher.
While enquiry remained robust, continued economic uncertainty delayed decision-making for larger occupiers, with more activity among the sub-500sqm market.
Sydney ended the year with face rents 4.2% higher and gross effective rents 2.7% higher than in 2021, driven by new premium stock coming online.
Cushman & Wakefield’s Head of Office Leasing, Australia and New Zealand Tim Molchanoff said office leasing activity across Australia in 2022 was marked by transitions.
“Shifts in ways of working, the economic cycle and financial markets all played a role in shaping tenant demand,” Molchanoff said.
“The big-ticket objectives last year of getting people back to the office and attracting talent in a tight labour market aren’t abating.
“That led occupiers, particularly smaller organisations, to pursue quality space and helped rents stabilise or move higher in 2022, which is expected to continue this year.”