Overall negative net supply in H2-17 and continued positive absorption is expected to see the Australia CBD office vacancy rate decline from 10.5% as at end June 2017 to 9.9% at the end of 2017. Vacancy is expected to trend down through 2018 driven by limited supply across all markets, and reaching a forecast low of 8.8% by the end of 2018.
Over the course of 2017, Sydney CBD secondary grade outperformed all office markets in the country for the second year in a row with net effective rental growth of 20.5%. Prime net effective rents in Sydney also grew robustly at 14.2%. Melbourne led the way in terms of prime net effective rental growth performance in 2017 at 15.9%, well-above its 10 year average annual growth rate of just under 2%.
National office sales transactions totalled $16bn over 2017. Overall, yield compression slowed in Q4-17, but Brisbane saw a greater level of compression with yields down ~20bps. Brisbane recorded office sales of $1.1bn over the quarter, the highest fourth quarter level in 10 years. Positive economic indicators and strengthening white collar employment are expected to drive an increase in effective rental growth in 2018 and countercyclical plays are now evident as buyers look to capitalise on the improving market conditions.