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Sydney office market reigns supreme but greenshoots emerge in Perth and Brisbane

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Sydney A Grade office values climbed 6.3 per cent to over $20,000 a square metre in 2018 as the Sydney CBD cemented its position as the country's premier office market, new figures from Savills Australia show.

Alongside this growth in capital values, Sydney CBD yields tightened 20 basis points to 4.75 per cent while rents rose 9 per cent to $1090 a square metre in 2018, after breaking through the $1000 barrier in September.

Savills national research director Shrabastee Mallik said 2019 was likely to still largely favour Sydney landlords, but that tenants would get some respite from 2020 onwards as new stock entered the market.

Sydney office rents rose 9 per cent in 2018. 

From 2019 to 2021, Savills research expects close to 400,000 sq m of office space to come online in Sydney.

"With just under 60 per cent of this upcoming stock available, we definitely see some power being transferred to the tenants," she said.

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This power shift could occur earlier than that with a new report by Deutsche Bank noting that incentives lifted unexpectedly sharply in the final quarter of 2018 – jumping 59 basis points to 18.6 per cent – a sign that tenants have a stronger hand in lease negotiations.

While Sydney reigned supreme on all key performance metrics, the Savills figures showed signs of improvement in the mining sector dependent markets of Perth and Brisbane.

In Perth, which managed a healthy $1 billion of office deals last year, rents were flat, but yields tightened 35 basis points to 6.9 per cent and capital values rose 1.3 per cent to $8000 a square metre.

Brisbane rents were also flat over the year, but capital values surged 11 per cent to $10,000 a square metre with yields tightening 35 basis points to 5.9 per cent.

Despite having the country's lowest vacancy rate, the Melbourne market was essentially flat in 2018 with little changes in rents or values and yields unchanged at 5.2 per cent.

Larry Schlesinger writes on real estate, specialising in commercial and residential property. Larry is based in our Melbourne newsroom. Connect with Larry on Twitter. Email Larry at larry.schlesinger@afr.com

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