Results of the latest DEXUS Office Demand Barometer shows clear signs of improving conditions for Sydney CBD office demand in early 2014, indicating a potential turning point in the market.
Last year saw weak demand in the office markets nationally, with office tenant demand and enquiry levels subdued, impacting rental growth. According to new research by DEXUS, the Sydney market proved fairly resilient in this environment, with stock additions remaining low and the vacancy rate declining marginally to 10.5 per cent in Q4 2013.
The DEXUS Office Demand Barometer increased from 0.6 per cent to 1.2 per cent over the quarter ending 31 December 2013, which Peter Studley, DEXUS General Manager, Research, said is: “Pointing to improved levels of take-up over the next three to six months, and indicating a clear turning point in office demand may have been reached in the Sydney CBD.”
A review of past research shows that at this level, the Barometer is close to its 10-year average of 1.3 per cent per annum. Studley also noted that demand growth is expected to be at modest levels given the economy is growing below trend.
“A significant improvement in business conditions in December 2013 will support growth in business confidence. This will have a positive impact on leasing as firms begin to focus more on their future expansion needs,” he adds.
According to the DEXUS report, the main driver of the improvement was an increase in business confidence in the finance, business and property sectors. The NAB Business Confidence Index for the finance/business/property sectors has shown a clear upward trend over the past year, while the share market and US growth also contributed.
The NAB Business Survey also reported a significant improvement in business conditions in December 2013, which the DEXUS report claims should benefit business confidence going forward.
“Growing confidence is a good sign for the leasing market, as businesses slowly begin to shift their focus from cost control to revenue growth and their future expansion needs,” it reads.
The objective of the DEXUS Office Demand Barometer is to monitor conditions which determine the level of demand for Sydney CBD office space. The Barometer includes five variables, selected based on their high correlation with Sydney CBD office demand, including:
- The S&P/ASX 200 Index of the top 200 companies captures the market view on profit expectations in the corporate sector
- The NAB Business Confidence Index for the finance/business/property sectors is an important indicator for the Sydney CBD which is heavily weighted to these sectors
- The ANZ job advertisement series demonstrates future employment conditions and growth, indicating the health of the economy going forward
- The US ISM Manufacturing Index is a good indicator of global activity, which drives the decisions of multinational companies (with a high concentration of head offices in the Sydney CBD)
- The volume of short-term business travel departures is a good indicator of broader business activity, with the number of business trips closely aligned to business activity.