2019 Commercial Property Outlook —Office

2019 Commercial Property Outlook —Office

11 January 2019

2018 saw large volumes of office stock traded across the major CBD markets, albeit just shy of the volumes recorded in 2016 and 2017.

There was significant activity very late in the year as sellers sought to capitalise on strong pricing, and despite increasing headwinds from rising bond rates, redemptions, political instability, and the difficulty in sourcing debt.

During 2019, the office sector will face similar challenges, with the Federal Election also expected to create some uncertainty.

Nevertheless, the fundamentals for most of Australia’s major markets remain positive, particularly in relation to the leasing market, CBRE’s Regional Director, Office Leasing, Paul Badenhorst says.

According to Badenhorst, this will underpin continued investor interest in Australia’s commercial property market relative to other asset classes and international markets.

During 2019, CBRE expects capital office leasing markets to trend as follows:

  • Melbourne will remain the most sought-after location, with Sydney close behind. The fundamentals will remain strong and pricing stable, but stock availability will be extremely tight
  • Canberra will see significant trading this year.
  • Brisbane, Perth and Adelaide will all benefit from the resources recovery and we will see some limited yield compression for prime stock.
  • Availability of debt could adversely impact pricing for secondary stock.

On a state-by-state basis, Badenhorst offers the following predictions:


Sydney will remain a tight market through 2019, with vacancy having reduced to 3.5 per cent. There are few immediate continuous options over 5,000 square metres.

Prospective tenants are showing increased interest in sublease opportunities that offer larger square meterage, secure remaining term, and flexible fit outs as an attractive alternative to direct lease space.

Larger scale traditional CBD occupiers now view North Sydney and the CBD Fringe as attractive alternatives. North Sydney is the only market in greater Sydney to have seen an increase in stock levels amounting to nearly 3 per cent in 2018.

Also, recent public and private investment in Parramatta has seen it become a primary CBD locale option, rather than just a location for satellite offices.


Melbourne vacancy continues to contract to nearly 3 per cent, making it the tightest vacancy of all major metropolitan areas—and the lowest experienced in Melbourne in a generation.

This is translating to sustained rental growth, amounting to over 16 per cent in the past two years. This should push through until 2020 when new development space is delivered and backfill space re-enters the market.

Melbourne has seen a continued flight to quality with the differential in prime (3 per cent) and secondary stock (5.3 per cent) widening to over 2 per cent.


Activity in the resources sector, as well as significant announcements on infrastructure projects, have fuelled Brisbane CBD leasing activity, resulting in positive net absorption and a reduction of 3 per cent in vacancy over 2018.

The availability of higher quality stock in both the Brisbane CBD and Fringe markets have produced a marked shift in the vacancy differential between prime (9.6 per cent) and secondary stock (19.4 per cent), with prime stock vacancy now almost half that of secondary.

With the majority of new development supply now having been absorbed, medium and large occupiers are now considering re-centralisation as an attractive option, with the CBD still offering attractive alternatives available ahead of new Fringe supply.


The Perth Premium Grade office stock has seen positive absorption over the past 12 months with the Premium building vacancy reducing to almost 4 per cent, largely offsetting the 3 per cent growth in Prime stock levels.

Like the Brisbane CBD, there is a clear differential between the prime (15.2 per cent) and secondary (25.8 per cent) markets of over 10 per cent.

Traditionally Perth office leasing demand has been driven off the back of activity in the oil and gas sectors, as well as iron ore operators. Since 2018 has seen increased activity in these sectors, the knock-on effect has been greater demand for premium offices, producing the first contraction in premium incentives for 6 years.


Demand from Defence, Resources, Health and associated serviced based industries has created positive sentiment in Adelaide’s office leasing markets. But while vacancy remains high, there is a continued downward trend.

Prime stock availability will continue to tighten in 2019, with the “top end of town” being near full, and there being few remaining large contiguous space options.

Incentives are expected to tighten further, with 2018 having seen 5.2 per cent growth in net effective rentals, which is expected to continue into 2019.

With no surplus space available for lease in new developments being delivered in 2019, CBRE expects that the older A grade and refurbished B grade market with immediate occupancy offerings will benefit.

With new occupier requirements coming to market it is expected that developers will remain active in the CBD and fringe markets.