City Centre Office Rents Climb but Growth Rates Diverge

CBD office rents grew across the board in 2022, but some cities are outperforming the market, and “performances are beginning to diverge”.

While Melbourne and Sydney experienced steady growth, Brisbane was buoyed by the strongest quarterly rise in more than 10 years for premium face rents, according to the latest Cushman & Wakefield Marketbeat report.

Premium grade office space in Brisbane was up 6 per cent in the fourth quarter, averaging $965 per square metre a year.

Elsewhere, A-grade gross face rents were up 1 per cent over the quarter to average $745 per square metre while B-grade were flat but up 2.3 per cent over the year, averaging $635 per square metre.

Another 26,500 office employees are expected in Brisbane in the next decade, according to Deloitte Access Economics, requiring an estimated 265,000sq m of office floorspace. 

There is around 195,000sq m of space recently constructed or due for completion this year, including Heritage Lanes at 80 Ann Street, which is delivering 60,000sq m to the premium grade market, while there are other major office developments in the works in the Queensland capital.

Construction on Dexus’s Waterfront Brisbane development is soon to begin after a court case over the development was dismissed last year. Completion is expected in 2027.

▲ A render of Dexus’s Waterfront Brisbane development, due for completion in four years.

The city, however, experienced softer growth in other grades, as did Perth. 

The Western Australian city CBD achieved relatively strong fourth quarter face rental growth in premium assets and only moderate growth was achieved in other grades.

This growth was driven by strong iron ore prices, a booming agricultural sector and continued investment in oil and gas, Cushman & Wakefield said.

Premium-grade net face rents rose again in Perth, up on the third quater by 4.5 per cent to $736 per square metre. A-grade and B-grade rents remained relatively stable at $594 and $462 per square metre.

Melbourne and Sydney CBD markets grew steadily as interest rate rises and economic uncertainty slowed decision-making, particularly at the larger end of the tenant pool.

In Melbourne, 550,000sq m of new and refurbished stock was added over 2020 and 2021 combined, but the first and second half of 2022 only delivered an additional 60,000sq m and 50,000sq m respectively, taking the CBD vacancy rate to 13 per cent.

▲ The vacancy rate for the Melbourne CBD rose 13 per cent during the quarter.

Business confidence was cautious and larger tenants were slower to commit, with many opting for short-term extensions, Cushman & Wakefield said. 

However, fitted-out speculative suites were providing the most activity, according to the office leasing team. 

B-grade rental levels were being pressured by the market’s desire for quality, the leasing agents said, remaining steady at $560 per square metre a year. 

Premium and A-grade net face rents were also steady in Melbourne, “reflective of new and better-quality stock”, averaging $725 and $660 sq m a year, respectively. 

In Sydney CBD, prime face rents remained steady at an average of $1410 per square metre a year, an increase of 4.2 per cent over the year.

“This was generally the result of quality uplift driven both by the completion of new Premium buildings as well as freshly renovated A-grade buildings with high-quality fitouts,” Cushman & Wakefield said. 

 Premium, A-grade and B-grade gross face rents averaged $1525, $1335 and $1045 per square metre respectively.

Sydney CBD supply was expected to be more subdued in 2023.