Sydney CBD office sales on the verge of wavering

Written on the 30 September 2019 by Business News Australia

Sydney CBD office sales on the verge of wavering

The first half of 2019 was a strong period of CBD strata sales, but despite solid fundamentals the market is expected to slow significantly in the coming years.

During the first half of 2019 $101.77 million of sales were recorded of Sydney CBD strata stock, but overarching demand levels for purchasing are beginning to show signs of wavering.

According to Samuel Hadgelias, Ray White Commercial NSW Associate Director, the future is not bright for CBD stock in the NSW capital.

"Lack of quality strata office offerings saw much competition emerge for stock in 2018, but the continued limited availability on the market this year has kept prices growing, albeit with less urgency from buyers," says Hadgelias.

"Reductions in interest rates should further stimulate this market but the continued difficulty in obtaining finance has slowed the pace of buyers acting."

"Looking ahead, there's a lack of quality stock available to the market, which is likely to result in a reduced sales turnover level during the ate part of the year."

"With low interest rates and reducing yields across most investment options, many owners are now looking to hold their assets, particularly during this time where vacancies are low and face rental levels have been elevated."

According to Ray White's latest Between the Lines research on the property market in Sydney capital values across most precincts recorded for 2019 continue the upward trajectory that has been witnessed since the 2014-15 period.

The research also shows how the Sydney CBD has enjoyed robust rental growth over the past four years during low vacancy and much disruption to the city centre.

"Over time where stock has come and gone from the CBD, total stock levels have remained steady, which has been the catalyst for the significant occupancy improvement and rent escalation," says Ray White Sydney office leasing principal Anthony Harris.

"Incentives have also eroded during this period but kept stable over the past 12 months to represent 10-12 per cent on average, albeit the range substantially based on both the quality of the premises and other agreed lease terms."

Despite the impending gloom predicted by Ray White, the real estate group still says the NSW capital is the number one office market in Australia that both domestic and international funds are seeking to invest in.

"The spotlight on the Sydney CBD is due to its global city status that has continued to put downward pressure on already record low yields," says Harris.

"While the fundamentals of the office market continue to be sound with low vacancy, we're seeing strong increases in face rents while the local economy continues to grow, due to increased population and job numbers."

The Ray White report also details how affordability continues to be a key issue for tenants in Sydney CBD with smaller operators taking advantage of the flexibility of co-working spaces and putting off committing to traditional commercial office leases.

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