As residential rental yields hit record lows
, a similar situation appears to be playing out in commercial markets as well.
Figures from global real estate services firm CBRE show continued compression has driven office yields in Sydney’s CBD to their lowest levels since before GFC.
According to CBRE, prime office yields in the Sydney CBD hit a nine-year low in of 5.2% over the September quarter.
While conditions in the market are currently similar to those of the cycle that preceded the GFC, CBRE Sydney office senior director Michael Pisano said it’s likely the growth cycle that has pulled rental yields down will continue.
“The drivers of the current market are vastly different when compared to the previous cycle, which further suggests a greater degree of sustainability,” Pisano said.
“Capping off an impressive run in yield compression over the past three and a half years, Sydney CBD office yields have reached pre-GFC lows - without the same level of market rental growth to stimulate pricing when compared to the market in 2007,” he said.
Like they have for the residential market, Australia’s low interest rates have played a key part in pushing along the cycle.
While it is unlikely interest rates will move significantly higher in the near future, McNabb said there are also other conditions in the market that will help extend the current cycle.
“A long period of lower interest rates has been the key stimulus to the current cycle, however the next phase will be supported by lower vacancy rates and forecast rental growth,” he said.
“The other difference between now and the pre-GFC peak is that the fundamental outlook for the Sydney office market is looking solid. Vacancy - currently 5.6% - is expected to fall to 3.3% by 2018 and prime effective rent growth is running at a 23% annual rate in Q3 2016.”