Contraction by larger occupiers also led to sublease availability rising over the first three quarters of 2023. Sublease levels reached a peak of 140,000 sq m in August 2023. This trend showed signs of reversing towards the end of the year and sublease levels ended 2023 at 129,000 sq m. The 2023 peak was still well below the highest levels observed over COVID-19. Given the lack of transaction activity and some contraction decisions from larger occupiers, Sydney CBD’s overall vacancy rate increased to 12.2% as of year-end 2023. This represented an increase of 0.9 percentage points YoY. Vacancy rates in the Sydney CBD are expected to correlate highly with the delivery of new supply over the next three years. CBRE forecasts vacancy rates to rise in 2024 due to the elevated supply pipeline over the next 12 months. Following this supply wave, however, the market will have the opportunity to stabilise as limited new supply is expected to be delivered in 2025 and 2026. Demand Drivers The Sydney CBD continued to see steady demand for office space in 2023. CBRE received 411 leasing enquiries totaling over 421,200 sq m over the trailing 12-month period. The number of briefs received in 2023 decreased by 13.7%YoY, and the volume of briefs received was down 8.8% YoY. While the 2023 enquiry totals were lower than the record setting figures seen in 2021 and 2022, they were broadly in line with preCOVID-19 totals. The largest proportion of enquiry originated from Finance & Insurance (19.3%), Technology & IT (18.9%) and Professional Services (13.4%) firms. These sectors remain the largest occupier types in the Sydney CBD and are expected to account for the bulk of leasing activity going forward. Source: Property Council Australia, CBRE Australia Research, 4Q 2023 SYDNEY CBD NET SUPPLY, NET ABSORPTION AND TOTAL VACANCY The decline in the number of leasing briefs observed in 2023 was due primarily to a decrease in demand from mid-sized occupiers. Leasing briefs for spaces between 500-1,000 sq m declined 33.1% in 2023, and that for spaces between 1,000-3,000 sq m were down 18.8%. Comparatively, the number of leasing briefs requiring space sizes between 0-500 sq m were only down 1.4% YoY. On the other hand, there was no change in the number of larger leasing briefs above 3,000 sq m YoY. 120 100 80 60 40 20 0 -20 -40 -60 -80 Net Supply/Net Absorption ('000 sq m) 2Q 2019 4Q 2019 2Q 2020 4Q 2020 2Q 2021 4Q 2021 2Q 2022 4Q 2022 2Q 2023 4Q 2023 2Q 2024F 4Q 2024F Net Supply Net Absorption Vacancy 14 12 10 8 6 4 2 0 Vacancy (%) 114 CAPITALAND INTEGRATED COMMERCIAL TRUST INDEPENDENT MARKET REVIEW
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