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A Grade Dominates as Premium Grade Takes a Backseat

27 October 2023

The latest market report brings an unexpected shift in the office space sector, with A Grade properties now being the most sought after, surpassing Premium Grade for the first time since January 2019. This change can be attributed to the remarkable resurgence of 123 Albert St, where Dexus’s extensive refurbishment program has paid off, resulting in the asset achieving full occupancy.

However, Premium Grade and B Grade properties are facing challenges due to increased backfill vacancies in the market. Notably, the addition of 71 Eagle St and 193 North Quay has contributed to the challenges faced by Premium and B Grade properties. For instance, KPMG’s backfill in 71 Eagle St has added to Premium vacancy levels, with a significant increase of +3.67% in October. Bloomberg, the landlord for this property, appears to have no intention of dividing their whole floors, as it is the only Premium Grade offering that can accommodate spaces larger than 5,000sqm. Additionally, it is expected that more than 4,000sqm of space will become available in early 2024, further contributing to Premium vacancy levels.

In the case of 193 North Quay, the downsizing of the major tenant, Red Hat, and their move to serviced office space resulted in 2,833sqm of vacancy in the B Grade market, leading to a +0.81% increase in vacancy rates to 14.98%.

Some key highlights from the report include:

A Grade vacancy rates have decreased to 6.61% (-1.47%), thanks to 123 Albert St and a significant transaction involving a whole floor in 12 Creek St.
Despite the introduction of 10,075sqm of backfill supply into the market, the total vacancy rate has decreased by -0.10% to 9.85%, indicating the market’s resilience.
A-/B+ Grade properties have shown the most significant decline of -2.44% (13.08%) this month, driven by two whole floor transactions in 179 Turbot St and a number of speculative transactions in 215 Adelaide St.
This news suggests a dynamic and evolving office space market with shifts in demand and vacancy rates, particularly in the A Grade segment, which is now the most attractive choice for tenants.

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