Flight To Quality For The Office Sector

Businesses are increasingly demanding high quality office spaces, which is creating a “flight to quality,” according to Savills.

Savills said they predict investor demand for Australian premium commercial office space will remain strong in 2023, despite slowing growth, high inflation, and rising interest rates.

They said Sydney in particular is seeing a noticeable difference in office take-up, mostly between Sydney’s CBD market and some of the non-CBD areas.

The report said Sydney’s premium office market has seen a three-year cumulative increase in net absorption totalling around 12.3% of premium office stock.

However, office assets within Sydney CBD’s Midtown, Southern and Western precincts are experiencing declining net take-up, with office stock in each of these precincts displaying negative net absorption in the three years prior to 2022.

According to Savills, the robust demand for premium office space is due to the ongoing flight to quality trend, with the tightly-held market displaying no signs of weakening despite economic headwinds and the ongoing shift in working patterns.

While the Australian economy is expected to avoid recession in 2023, economic growth is likely to slow materially, and Savills warns that a softening in labour market conditions – both domestically and globally – may increase leasing risk in some markets.