Office rents have been severely affected by COVID since early 2020, particularly in Sydney and Melbourne.
We have considered below a comparison between a ‘benchmark’ B Grade office rent in Sydney CBD, grown at 4% per annum between 2012 and 2021. We have compared this to typical market growth for the same tenancy on a gross face basis.
Sydney – Gross Face Rents
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This demonstrates a significant uplift in face rents between 2017 and 2019 (years 6 to 8) as demand increased at the same time that a significant amount of office space was withdrawn from market.
Typical office incentives are plotted as follows:
Gross Incentives
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The graph below compares the same rental income streams as the first graph, but on a net effective basis.
Sydney – Net Effective Rents
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This clearly shows the spike in net effective rents between 2016 and 2018 as the market swung dramatically in favour of landlords.
This also illustrates the decrease in typical B Grade face and effective rents over 2020 and into 2021.
Interestingly, based on our research, rents appear to have fallen to a point that is reasonably in line with the benchmark ‘4% per annum growth’ case.