Office rental prices in Sydney rose by 30% to more than $50 in the 12 months to September 2017, which was the fastest growth rate in the world, according to Jones Lang LaSalle Inc.
The recent upswing led the city to maintain its status as the fastest growing market for office rents for the second year. Much of the increase can be attributed to the demolition of many office buildings to make way for the $12.5 billion metro line.
The city has removed around 400,000 square meters of office space, as the freed up space will be used for the Sydney Metro line, according to Anneke Thompson, Colliers International director of Australia research.
This leaves the city with just 135,000 square meters of space that have been added in the last three years. For this reason, it makes sense for more landlords to consider a shared office space franchise to make the most of high rents amid a limited supply. On the other hand, the sky-high prices in the city have led offshore investors to consider other capital cities, including Brisbane, for their office ventures.
The influx of offshore capital in Brisbane would cause office real estate transaction yields to contract in 2018, according to Savills state director Capital Transactions Peter Chapple. Prime property yields in the central business district registered at roughly 6% in the previous year.
The market in Sydney will still continue to be an investment destination for offices, although many have recognised the yield potential in Brisbane. This manifested in 2017 through $1.8 billion of office deals, Chapple said.
Office space dwindles in Sydney and more capital will flow into Brisbane this year, so property developers need to consider new rental schemes to accommodate as many tenants as possible.