Accountancy firm BDO has taken the first 6100 square metres in Sydney's newest office building, the Foster + Partners-designed Parkline Place, in a sign that even amid uncertainty over office assets, there is demand for high-quality accommodation.
In one of the largest leasing deals to be signed since the start of the pandemic, BDO will take levels 22 to 25 in the 39-storey tower that is due to complete in the second quarter of next year above the Sydney Metro Pitt Street Station and will move in 2025.
Construction of the $1.3 billion building co owned by Oxford Properties Group and Mitsubishi Estate Asia is being overseen by Investa, which will also manage the completed asset. It is the first confirmed leasing deal for the building at 252 Pitt Street that will be net zero in terms of operational emissions.
"Welcoming BDO to Parkline Place is a major milestone for this project," said Oxford Properties Australia head Alec Harper.
"It is further validation of our long-term investment thesis that best-in-class workplaces that are green, smart and focused on wellness and employee experience will continue to outperform."
As nervousness grows about the value of office assets in a time of rising borrowing costs and more working from home, the deal adds to evidence that major CBD office markets are holding up. New figures from JLL show the national vacancy rate for CBD offices held steady at 14.3 per cent in the March quarter, reflecting positive net absorption of 43,400 square metres.
There were differences between cities, of course. Vacancies in central Sydney, Brisbane and Adelaide fell, while they increased in Melbourne, Perth and Canberra from the previous quarter.
Sydney's CBD recorded positive net absorption of 3900 square metres in the first quarter. While the headline vacancy rate remained elevated at 13.7 per cent- down slightly from 14 per cent in December - limited options for contiguous space were leading to upward pressure on market rents, JLL said.
Net absorption in Melbourne - where the vacancy rate ticked up to 15.6 per cent from 15.4 per cent - was flat.
Canberra recorded a negative net absorption as a net 1300 square metres of space came back on to the market, as its vacancy rate lifted to 7.8 per cent from 7 per cent. Office markets remain challenged, however.
"Whilst leasing activity remains relatively stable and physical occupancy is improving, market vacancy remains at historical highs," Jefferies analysts Sholto Maconochie and Ronny Cheung said in a research note.
"We believe working from home is abating despite pre COVID-19 occupancy of less than 65 per cent in Sydney and Melbourne ... We believe a risk of recession and increased unemployment likely sees vacancies and incentives remain elevated in anticipation of near-term supply in 2024-25, putting downward pressure on rents and valuations."
The value of incentives paid by landlords to tenants for prime office property rose 0.3 per cent in the March quarter in both Sydney and Melbourne, the analysts said.
At the same time, however, net effective rents rose in all cities - except Melbourne - as face rental growth outpaced incentives.
"Prime net effective rents in Sydney grew 2.2 per cent quarter on quarter to $701 per square metre, as incentives increased 0.3 per cent to 34.8 per cent," the Jefferies analysts said.
"Conversely, Melbourne prime net effective rents declined 0.5 per cent quarter on quarter to $352 per square metre, with incentives offsetting face rental growth."
At Parkline Place, 47,839 square metres of office takes up 30 levels. It will also have 1285 square metres of hospitality and retail.
The country's largest commercial landlords have been focusing on higher-quality office assets and disposing of lower-grade ones as workplace and commuting habits go through a time of upheaval.
They are counting on a continued demand from blue-chip tenants for properties that offer quality and amenity.
"Buildings like Parkline Place are integrated with transport hubs, are surrounded by retail, hotels and other amenities coveted by a workforce that in a post-COVID environment, is demanding more and more," Investa head of property Michael Cook said.
"The low-end A-grade and B-grade buildings are recovering slowly from the pandemic compared to prime A and premium assets, which appear to be getting close to pre-pandemic occupancy levels".
