The office sector is tipped to make a strong comeback in 2022, with tenants shoring up CBD space ahead of Christmas.
Property specialists say strong enquiry in office leasing in recent months means that 2022 will be a year of recovery after tenancies dropped away during the pandemic.
Dexus has sold close to $1.5 billion worth of offices amid an investor surge in Sydney and Brisbane. Rebounding business confidence, according to Dexus, has provided a much-needed shot in the arm for the take-up of office space.
According to the group’s quarterly real estate review, office enquiry is at its highest levels since 2018.
AMP Capital has this year completed the rejuvenation of its Quay Quarter development, which brings together office with retail, dining and residential, after years of planning and construction.
The latest labour force data from the ABS is encouraging, with October’s figures showing a rebound in participation as Australia’s south-east exited Delta lockdowns. An additional 57,000 people entered the NSW labour force in October.
Meanwhile, nearly 300,000sq m of new deals concluded across the national office market, compared to 163,085 in the same period last year. Comparatively, in the second half of 2020 and over the first quarter of 2021, there was 286,619sq m of new space transacted.
In Melbourne, 360 Collins Street has been leased, demonstrating continued demand for high-quality office space, Dexus says.
CBRE’s Pacific head of office leasing Mark Curtain says the firm recorded strong transactional activity across Australia in the second and third quarter despite the country’s two major office markets being plunged into lockdown.
“Sydney, in particular, has demonstrated a high level of resilience with tenants clearly looking through the present challenges and focusing on what needs to be done to support their medium- to long-term office accommodation strategies,” Curtain says.
In Brisbane, Marquette Properties managing director Toby Lewis says this year has been the best year of leasing he’s had since 2007.
After a $285-million cash splash to secure 10 Eagle Street in Brisbane, Lewis says that tenants are making decisions at a much more rapid pace than at any other time during the past decade.
Leases are being signed by global, national and local companies, corporate, professional services, agriculture, mining and resources, real estate and insurance companies, he says.
Brisbane is a strong performer, and Lewis believes that states that have experienced extended lockdowns will bounce back quickly, and that retailers will start to feel positive impacts soon.
“As long as we don’t keep getting shut down, and confidence being affected, I think it should be a good year next year,” he says.
Growing confidence in the office market appears to have buoyed some of Australia’s major owners and developers, too.
Super fund-backed Cbus Property has redesigned and resubmitted plans for its approved $1 billion-plus office tower at 435 Bourke Street, Melbourne.
The 48-storey tower, which was initially approved in January 2020, will add an additional 60,000sq m of net lettable area to the Melbourne market.
In Sydney, Charter Hall is pushing forward with a unique project on one of Sydney’s most iconic CBD properties—lodging plans for a second tower at the $1.8-billion 2 Chifley Square site.
Charter Hall office chief executive Carmel Hourigan reports broad optimism in the office market in Melbourne.
The southern market was particularly affected by the most recent lockdown and that, broadly, there have been cultural challenges impacting the office sector that landlords have had to manage.
Despite this, there are “huge amounts of capital” flowing through the system, she says.
Hourigan confirms that Charter Hall has been fielding strong enquiry and requests for information (RFIs) in 2021, and that the firm has secured 220,000sq m worth of deals this past year. The public sector activity supporting RFIs stands at around 40 per cent, she says.
She remains positive about the next 12 months, with equity and activity up into 2022.
“I think you’ll see more people out there capital raising for offices, we’re already seeing it. We’re certainly raising capital at the moment. And there’s a lot of optimism around 2022,” Hourigan says.
She also noted strong capital injections from Asia into the local office market.
“For us as landlords, it’s about getting people comfortable with coming back to the office and hybrid working and as time has gone on there’s more evidence to suggest that the office is going to be a critical part of any organisation’s workforce involvement,” Hourigan says.
Significant waves of new supply across Sydney and Melbourne CBD office markets have been the most significant driver of rising vacancy rates of late, according to Oxford Economics.
Net additions are expected to total over 320,000sq m and 450,00sq m in the Sydney and Melbourne CBD over their respective waves of new supply.
Business confidence and job advertisements have remained positive. Canberra holds the record of having one of the tightest office markets globally, JLL head of research Andrew Ballantyne says.
Companies directly impacted by Covid, such as Qantas and Flight Centre, have reduced their commercial footprint, but on the flip side, many organisations are in expansion mode. Workers will return to CBDs in 2022. Activity won’t be at pre-Covid levels until the return of international students and tourists, but things are positive, he says.
“It’s naïve to assume that every organisation will adopt the hybrid model of work moving forward, with plenty of tenants taking additional space,” he says.
Federal and state government departments are taking new leases, along with Woolworths, Menulog and Bunnings, who have taken additional space due to changing commercial needs through Covid, he says.
Ballantyne also reports more leasing activity from tenants in the technology, finance, insurance, defence and cyber security sectors.
There is the potential for landlords and developers to reposition older homogenous office stock to meet occupier requirements. Office additions such as prayer rooms and gender-neutral bathrooms are worthy additions to new builds, he says.
Hourigan says that she’s investing in assets with high-quality air flow, which will be an important part of the development brief moving forward.