Sydney CBD core prime office yields hit a nine-year low at 5.2% in the September quarter, according to the latest Market Flash highlights from CBRE. Secondary yields are also 20 basis points off their pre-GFC low of 5.9%.
But even though the current office sector has similarities to the market pre-GFC, CBRE’s senior director Michael Pisano said that some key differences suggest that the current growth cycle might be maintained for longer.
“Capping off an impressive run in yield compression over the past three and a half years, Sydney CBD yields have reached pre-GFC lows – without the same level of market rental growth to stimulate pricing when compared to the market in 2007,” said Pisano.
“Evidencing this, the drivers of the current market are vastly different when compared to the previous cycle, which further suggests a greater degree of sustainability.”
For one, it is the sustained low interest rate environment that serves as the main driver of yield compression.
“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,” said CBRE head of research Stephen McNabb.
“Importantly, this rent growth is following, not leading, the yield compression, which is in stark contrast to the performance of the office market after the GFC.”
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