Office rental prices skyrocket, tenant demand drops

By Simon Nichols

Demand to rent office space in the Sydney CBD has decreased significantly since March last year, according to latest figures.
‘Confidence is down as a result of interest rate rises and the situation in the US and UK markets,’ research manager Selina Poyner of Knight Frank said.
‘From the first quarter of 2007 to the present, there has been about a 60% drop in demand in the market.’
Ms Poyner believes that companies are concerned about their growth prospects and are waiting for the economy to stabilise before making consequent expansion and relocation decisions.
‘They’re adopting a ‘wait and see’ approach,’ she said.
Another issue contributing to this low demand is the increase in rental cost within the CBD. According to Knight Frank, office rent has increased by about 18 per cent over the last twelve months. Tenants now pay an average of $705 per square metre.
‘Rents in the CBD are now 60 per cent more expensive than North Sydney and over double of all remaining NSW office markets,’ Ms Poyner said.
On the upside, the present Sydney CBD commercial vacancy rate is at an 18 year low of 3.7 per cent. ‘Due to low levels of vacancies, the market is well-positioned to handle this low demand,’ she said. ‘Normally, the demand exceeds the supply of property for rent in the commercial market.’
The rental office market is not expected to pick up again until at least the end of the year, Ms Poyner.