Blog - Commercial

08 February 2019

OFFICE VACANCY RATES IN SYDNEY CBD HIT 19-YEAR LOW

Commercial office vacancy rates in the Sydney CBD are now sitting at about 4%, which is their lowest level since 2000. What’s more, due to healthy employment levels, many experts believe that these vacancy rates will fall even further in 2019, despite new stock coming onto the market.

The effect of office vacancy rates on rental rates

And as you’d expect with demand being so strong, rental rates are also at record-breaking levels. Average CBD rental rates broke through the $1,000 per square metre barrier in the second half of 2018.

And the record-smashing doesn’t stop there.

Years of capital growth in the Sydney CBD market has also seen the value of A-Grade premises surge through the $20,000 per square metre barrier!

In fact, values have risen so sharply that average rental yields have actually dropped slightly, despite rental rates increasing. The average rental yield in the Sydney CBD is just under 5%, which is still a healthy return.

A person walking through the Sydney CBD

How does the Sydney CBD market compare with the rest of Australia?

Sydney CBD office rental rates and capital values are undoubtedly the highest in Australia. Average rental rates are almost double those in Melbourne, which has the second-highest rates. And Sydney CBD capital values are more than double those in Melbourne.

On the flip side, rental yields in the Sydney CBD office market are the lowest in Australia due to capital values being so high.  

Sydney is also slightly behind the Melbourne CBD in terms of the lowest vacancy rates, but the rates in both markets are significantly lower than those in the CBDs of Australia’s other capital cities. Significantly, incentive levels in the Sydney CBD are currently running at about 20%, which is about 5% lower than Melbourne.

The Melbourne CBD at sunset

What’s happening in other Sydney office markets?

The strong long-term performance of the Sydney CBD office market has been mirrored (and even surpassed) in other areas of the city. For example, both the Parramatta and North Sydney markets experienced double-digit increases in capital growth rates over the past year and yielded just over 5%. That’s higher than the yields you can get in the CBD.

Parramatta is arguably fast becoming Sydney’s “second CBD”. The area is continuing to redefine itself off the back of strong population growth. Significantly, vacancy rates in Parramatta are even lower than the CBD (sitting at around 3%). It’s also much cheaper to buy A-grade premises in Parramatta. There you’ll pay around $10,000 per square metre, as opposed to more than $20,000 in the CBD.

Aerial view of Sydney's sprawling suburbs surrounding Sydney Harbour

How can we help?

The commercial property team at TGC brings a wealth of experience in Sydney CBD, city fringe and metropolitan markets. We buy, sell, lease and manage properties for our clients and take the time to understand their needs so we can provide them with the best possible service and advice.

Contact us today to find out how we can help you with your Sydney property needs!

Date: 08 February 2019 Author: Gino Soglimbene
Commercial

About the author:

Gino Soglimbene

Gino Soglimbene a Commercial Sales and Leasing Consultant who focuses on commercial leasing within Sydney’s City Fringe. He brings over 15 year's experience in small business and hospitality and has worked as a Tenant Advisor for major international retailers.

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