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OFFICE yields have dropped to a pre-GFC low in the Syndey CBD and could fall further new CBRE research shows.
CBRE's latest Market Flash shows that Sydney CBD core prime office yields reached a nine-year low of 5.2% in Q3, while secondary yields are 20 basis points off their pre-GFC low of 5.9%.
"A long period of lower interest rates has been the key stimulus to the current cycle, however the next phase will be supported by lower vacancy rates and forecast rental growth," says McNabb.
The other difference between now and the pre-GFC peak is that the fundamental outlook for the Sydney office market is looking solid. Vacancy - currently 5.6% - is expected to fall to 3.3% by 2018 and prime effective rent growth is running at a 23% annual rate in Q3 2016."
He adds: "Importantly this rent growth is following, not leading, the yield compression which is in stark contrast to the performance of the office market after the GFC."
Strong rent growth in Sydney could provide further scope for yield compression, however there is an absence of prime stock being put to the market at present.
"Importantly though, we will witness activity in the second half of 2016 in support of yield compression in the secondary market and the narrowing of the gap between prime and secondary yields," Pisano explains.
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