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With the sector’s pandemic recovery ongoing, new research from LJ Hooker indicates that landlords are set to increase rents during 2023 to protect their income streams.
LJ Hooker Commercial’s latest Office Market Monitor report detailed landlords’ intentions to increase prime office rents throughout the new year while remaining flexible on incentives, before the latter tapers off towards the back end of 2023.
Removed incentives could be troublesome as Mathew Tiller, the network’s head of research, outlined employers feel greater pressure with employees back into the office with the presence of premium amenities spaces such as kitchens, breakout rooms, and proximity to transport, among others.
Mr Tiller explained the sector was still some distance from pre-pandemic levels as many businesses opt to close their smaller satellite offices and allow staff to work from home.
“The upwards trend in rents may surprise tenants who are coming off leases, but it’s a reflection of landlords wanting to peg their agreements to CPI; incentives remain traditionally high,” he said.
While Sydney and Melbourne are typically positioned as Australia’s leading office markets — and have recorded incremental rent increases over the past year — Brisbane rents have grown the fastest this year due to strong mining performance and tourism recovery, albeit from a lower base.
Leases continue to be negotiated under a cloud of uncertainty as employers grapple with post-pandemic office behaviour which sees Tuesday to Thursday as “peak” occupancy days, while the rest of the week experiences decreased capacity.
This has left occupiers uncertain about their exact spatial needs, especially with Mr Tiller noting employees “expect a desk when they come into the office”.
This leads to tenants forced into determining “whether they’ll stretch their outgoing to ensure everyone is happy or take less space and try to manage frustrations on peak days”.
Compounding employers’ indecision is the content presence of inflation and an uncertain and turbulent global outlook which is expected to mount pressure on businesses during 2023.
Moreover, a building’s environmental, social, and governance (ESG) credentials were a major player in tenants’ decisions as energy costs continue to soar.
On an investment front, Mr Tiller revealed capitalisation rates were weaker in office than industrial and retail assets, with the expectation for these rates to remain soft in the 12 months ahead due to the “monetary policy in its current cycle and a reluctance by many workers to come back to the office full time”.
On a positive note, the report forecasted a rebounding on the office market during 2024 as global economic circumstances improve.
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