FIGURES | AUSTRALIAN OFFICE | Q1 2024

FIGURES | AUSTRALIAN OFFICE | Q1 2024

Rents stable or growing in all CBD markets

5.9% y/y 2.7% y/y 40.2% $1.2b
AUS Average Prime NFR AUS Average Prime NER AUS Average Prime Incentives AUS Sales Volumes Q1 24

Note: Arrows indicate change from previous quarter.

Key Points FIGURE 1: Australia CBD Prime Office Rents and Incentives
‒ Labour market has started to cool with job ads down 14.9% y-o-y in March 2024.
1200 50%
‒ National rental growth sitting at 2.7% y-o-y (effective rent), driven by markets like Brisbane, 45%
Perth and Sydney. 1000 40%
‒ Incentives are showing signs of falling in stronger markets and have stabilised in other cities. 800 35%
30%
‒ CBD vacancy trended higher over the past 12 months to 13.7%. National vacancy is expected

$/sqm
600 25%
to peak in 2024.
20%
‒ Investment market remains subdued with $1.2b worth of transactions in Q1. 400 15%
‒ The degree of yield softening is starting to slow off the back of more certainty on interest 200 10%
rates and recent deal evidence in some markets. Yields are expected to stabilise in 2024. 5%
0 0%

Sep-20

Sep-21

Sep-22

Sep-23
Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19
Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
Mar-20

Mar-21

Mar-22

Mar-23

Mar-24
Incentive (RHS) Net Face Rent Net Effective Rent

Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

FIGURE 2: Australia CBD Prime Office Key Market Indicators

Rents and Incentives
WA Q1’24 q-o-q y-o-y QLD Q1’24 q-o-q y-o-y
All markets reflecting stable or positive face rental growth
in Q1 R $684 0.0% 4.4% R $775 3.0% 10.2%
I 46.4% 0bps -142bps I 40.6% -18bps -78bps
Net face rental growth across Australian CBD’s averaged 1.1% q-o-q
in Q1 2024, with no market recording negative growth. Brisbane Y 7.26% +8bps +41bps Y 6.39% +6bps +50bps
remains the outperformer in Australia with 3.0% NFR growth in Q1
and 10.2% over the past 12 months. Markets that have been weaker
over the past few years like Melbourne and Adelaide are starting to NSW Q1’24 q-o-q y-o-y
observe a stabilisation with some solid face rental growth in Q1. The
Sydney CBD is also performing well, particularly in the Core precinct R $1,449 0.9% 6.8%
where vacancy has tightened.
I 33.5% +20bps +30bps
Downward pressure on incentives Y 5.88% 0bps +100bps

Given the higher cost of capital, landlords are scrutinising incentive

levels more than in previous years. There is some evidence of
incentive levels dropping in markets like Brisbane, where landlords ACT Q1’24 q-o-q y-o-y
have more leverage given the tighter vacancy environment. R $451 0.0% -0.4%
However, markets like Melbourne and Adelaide are observing a
degree of stabilisation, while incentives are dropping in some of the I 26.4% 0bps +63bps
best assets in each of the respective markets. Y 6.90% +30bps +102bps
Net effective rental growth was strongest in Brisbane in Q1 at 4.0% SA Q1’24 q-o-q y-o-y
q-o-q, resulting in 14.0% growth y-o-y. Perth has also performed well
R $470 3.3% 1.8% VIC Q1’24 q-o-q y-o-y
over the past 12 months, with effective rental growth of 7.3% y-o-y,
although vacancy in that market is expected to rise this year, which I 35.2% -17bps +67bps R $707 1.0% 3.7%
might limit further growth.
Y 7.46% +7bps +92bps I 46.9% -3bps +548bps
Y 6.05% +16bps +95bps

Abbreviation: R - Net Face Rent, I – Incentives, Y- Yield. Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

Figure 3: Net Absorption by Market (as % of total stock)

Demand and Vacancy
2.0%
Negative absorption across most markets, although a few 1.5%
anomalies in the numbers 1.0%
0.5%
Australian CBD’s recorded -201,300 sqm of net absorption in H2
0.0%
2023, bringing the full year to -216,500 sqm. Despite the negative
result, this was partly an anomaly given the boundaries of the Perth -0.5%
CBD were redrawn which meant a decline in occupied stock -1.0%
(negative absorption) of 79,000 sqm. However, the continuation of -1.5%
contractionary activity did occur in the Sydney CBD and Melbourne -2.0%
CBD. Brisbane also recorded -12,700 sqm of net absorption, Australia CBD Sydney CBD Melbourne CBD Brisbane CBD Adelaide CBD Perth CBD Canberra
although this was partly due to an owner occupier withdrawal of
stock for refurbishment. H2 2021 H1 2022 H2 2023
Source: PCA, CBRE Research
Non-CBD markets actually bucked the trend with +17,300 sqm of Note: The negative absorption in Perth was largely a function of changing boundaries in that market, therefore withdrawing buildings from the basket leading to negative absorption.
net absorption in H2 2023. The Brisbane Near City was the biggest
contributor with +38,900 sqm of net tenant demand. Figure 4: Total Vacancy
20%
19.3%
Vacancy rises across most markets
18%
Overall CBD vacancy edged higher to 13.5% in December 2023, up 16% 16.4%
from 12.6% a year earlier. The Sydney CBD observed a similar 14.9%
increase in vacancy over the past 12 months, rising from 11.3% to 14%
13.5%
12.2%. Melbourne’s vacancy has also continued to trend up reaching 12.2%
12% 11.7%
16.4%, while Adelaide’s vacancy rose to 19.3% off the back of
elevated supply. 10%

8% 8.3%
On a positive note, Brisbane, Perth and Canberra have all recorded a
decline in vacancy over the past 12 months, off the back of solid 6%
tenant demand and relatively limited supply. Australia CBD Sydney CBD Melbourne CBD Brisbane CBD Adelaide CBD Perth CBD Canberra

Dec-22 Dec-23

Source: PCA, CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

Figure 5: Australian CBD Net Supply

Supply
Supply to pick up in 2024 600,000
Forecast
Office supply in 2023 was relatively in check with an uptick in
withdrawals across the market and only Melbourne and Adelaide 500,000
recording positive net supply for the year.

However, 2024 is expected to see an uptick in supply, particularly 400,000

Sydney, Melbourne and Canberra. The major over-station

sqm
developments in the Sydney CBD including 1 Elizabeth Street
300,000
(75,000 sqm), Parkline Place (48,000 sqm) and 39 Martin Place
(30,000 sqm) are all set to be delivered this year with healthy pre-
commitment levels. In Melbourne, the major project to be delivered 200,000
this year will be Lendlease’s Melbourne Quarter Tower.

Construction costs and cap rates impacting on supply from 2027 100,000
onwards

Despite the uptick in supply this year, there has been a general 0
trend across Australia for mooted supply to be abandoned or
postponed given the current construction cost environment and
uncertainty on valuations of office assets. Therefore, supply is -100,000
expected to trend down from 2025 onwards, with 2027 and 2028
likely to be around half the long-term average supply for Australia.
-200,000

-300,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Sydney CBD Melbourne CBD Brisbane CBD Perth CBD Adelaide CBD Canberra Average

Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

Figure 6: Australian CBD – Prime Capital Value Index

Hot Topic
350
Is it time to buy Office?
300
The valuation declines in the office sector have been well reported 250
across the globe. Australia has not been immune from these impacts
as rising interest rates and structural questions on the sector have 200

Index
impacted on values over the past 18 months.
150
However, the yield softening cycle appears to be starting to
100
stabilise given interest rates are likely to have peaked and the
market is pricing in rate cuts by the end of 2024 in Australia. Also, 50
rental growth is very healthy in the best performing markets and
precincts, while the weaker markets are seeing some stabilisation.
This combination of factors is causing capital values to stabilise, as
shown in figure 6. The chart highlights that average capital values
are sitting well below the long-term trendline, which hasn’t occurred Figure 7: Indicative Prime Cap Rates – Q1 24 vs 10 Year Average and Peak
since mid-2017.
8.0%
As shown in figure 7, capitalisation rates are starting to show 7.5%
genuine value compared to historic averages. All CBD markets in
7.0%
Australia have seen prime yields soften over 100 bps from peak
pricing. All markets also sit between 40-90 bps above 10-year 6.5%
average yields. 6.0%
5.5%
5.0%
4.5%
4.0%
Sydney CBD (Core) Melbourne CBD Brisbane CBD Perth CBD Adelaide CBD Canberra Civic

Q1 2024 Peak Pricing (Past 10 Years) Average (Past 10 Years)

Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

Figure 8: Australia Office Investment Volumes

Investment Market
30 60%
Transaction volumes in Q1 2024 reached $1.16 billion across
Australia, a 21% increase on the same period in 2023. However, this
remains well below historic averages, highlighting that capital
markets remains subdued. While pricing has come off with relative
25 50%
value compared to historic averages, there remains a lack of
conviction amongst buyers and vendors which is causing the
current stagnation in the market.

AUD Billion
Sydney remains a key target for investors with another major 20 40%
transaction occurring in the CBD in Q1. Keppel REIT acquired a 50%
stake in 255 George Street for $364m. The asset was purchased
from Mirvac’s Wholesale Office Fund at a reported 17% discount to
peak valuation. This was the only sale to occur around the country
over $100m during the quarter. 15 30%

Australian CBD yields softened by 10 bps in Q1 2024 to average

6.20%. The degree of softening is starting to slow, with CBRE
Research recording +27 bps in Q3 2023 and +25 bps in Q4 2023. We 10 20%
expect that yields in most markets will stabilise in H2 2024 as more
transactional evidence occurs and investors are more willing to
enter the market.

5 10%

0 0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Q1 Q2 Q3 Q4 Proportion of Foreign Buyers (RHS)

Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

FIGURE 9: Australian CBD Market Balance FIGURE 10: Vacancy by Grade across CBD Markets

700,000 14% 25.0%

600,000 12%
500,000 20.0%
10%
400,000 8%
300,000 15.0%
6%
sqm

200,000
4% 10.0%
100,000
0 2%
-100,000 0% 5.0%
-200,000 -2%
-300,000 -4% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Sydney CBD Melbourne CBD Brisbane CBD Perth CBD Adelaide CBD Canberra
Net Supply Net Absorption Vacancy (RHS) Prime Secondary

Source: PCA, CBRE Research Source: PCA, CBRE Research

FIGURE 11: Q1 2024 Rental Growth by Market (Y-O-Y) FIGURE 12: Prime Yields – Q1 2024
8.0% 7.5% 7.3%
20%
6.9%
7.0% 6.4%
15% 6.0%
5.9%
6.0%
10%
5.0%
5%
4.0%
0%
3.0%
-5%
2.0%
-10% 1.0%
Brisbane CBD Perth CBD Sydney CBD Adelaide CBD Canberra Civic Melbourne CBD
(Core) 0.0%
Sydney CBD Melbourne CBD Brisbane CBD Adelaide CBD Perth CBD Canberra Civic
Net Effective Net Face (Core)

Source: CBRE Research Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

TABLE 1: Australia Non-CBD Prime Office Key Indicators, Q1 2024

Market Demand Net Face Rent (q-o-q change) Incentives (q-o-q change) Net Effective Rent (q-o-q change) Yield (q-o-q change)

North Sydney  $993  35.4%  $589  6.50% 

Parramatta  $583  46.3%  $313  7.29% 

Macquarie Park  $442  34.2%  $291  7.54% 

Chatswood  $653  38.8%  $354  7.67% 

Crows Nest/St Leonards  $690  39.2%  $372  7.27% 

Southbank  $641  43.8%  $361  7.06% 

St Kilda Road  $463  48.8%  $237  7.78% 

Brisbane Near City  $599  41.1%  $302  7.26% 

West Perth  $406  36.3%  $259  7.78% 

Canberra Non-CIVIC  $410  25.4%  $285  6.98% 

Note: Arrow indicates change from previous quarter. Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

TABLE 2: Australia Major Office Sales, Q1 2024

Proportion
Address Market Sale Date Sale Price ($m) Purchaser Vendor
Sales

255 George St Sydney Mar-24 363.8 Keppel REIT Mirvac 50%

124 Walker St North Sydney Jan-24 95.5 Ho Group Dexus Wholesale Property Fund 100%

Growthpoint (AUS), SC Capital

965 Bourke St Waterloo Jan-24 87.0 Cambridge RE Partners Partners 100%

40 Tank Street Brisbane Jan-24 73.0 Alceon Charter Hall 100%

499-501 Kent St Sydney Feb-24 66.3 ICON Oceania Element Property Sydney Pty Ltd 100%

358 Lonsdale St Melbourne Feb-24 56.0 Undisclosed Krongold Family 100%

309 North Quay Brisbane Mar-24 46.0 Shayher Group QuadReal, Charter Hall 100%

Source: CBRE Research

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 FIGURES | AUSTRALIAN OFFICE | Q1 2024

Contact - Research

Tom Broderick Sameer Chopra

Head of Office & Capital Markets Head of Research, Pacific and ESG
Research Asia Pacific
+61 430 405 910 +61 422 242 830
tom.broderick@cbre.com.au sameer.chopra@cbre.com

Thomas Biglands Sarun Kunakool

Research Manager, NSW & ACT Senior Research Analyst, WA
+61 426 841 019 +61 403 084 770
thomas.biglands@cbre.com sarun.kunakool@cbre.com

Cameron Douglas-Perrine Masha Lobanova

Research Analyst, VIC Research Analyst, SA
+61 450 801 459 +61 405 393 449
cameron.douglasperrine@cbre.com masha.lobanova@cbre.com

CBRE Offices

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