DEXUS Property, the country's largest office landlord, says demand for office space is on the increase and that has led to a fall in the average rental incentives being offered to tenants.
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Further endorsing the tight market for tenants is an expected increase in demand from small to medium businesses who are keen for a city address and seemingly willing to pay the higher charges.
DEXUS' executive general manager, office and industrial Kevin George said one example is the new leases in Governor Phillip Tower, where net effective rents have increased by 20.4 per cent.
In the group's first-quarter update Mr George said DEXUS has "our overall average incentives fall across the portfolio, driven by some properties which are in high demand and as a result have achieved solid growth in rents and reduced incentives at these properties".
Over the quarter the key leases have been at its 30 The Bond, in Sydney, where Lendlease vacated to Barangaroo with the Roche group taking up 4418 square metres of the space available space.
Mr George confirmed the group's forecast that office vacancy in Sydney's premium-grade assets would fall to about 4.2 per cent in the 2018 financial year.
In Melbourne there has also been a solid rise in leasing activity from a variety of smaller space users, which has resulted in a significant amount of leasing activity with over 158,000 square metres of space being leased and occupancy improving from 90.4 per cent at June 30, 2016 to 92.3 per cent in only three months.
The industrial sector is also riding high with activity for the next quarter expected to continue in the small to medium-enterprise category.
"This activity is aligned to the food-processing and material-handling automation sectors seeking central west solutions in Sydney. Various negotiations are also under way within south-east Melbourne involving tenants from the education and wholesale retail sectors for both metro office and warehousing space," he said.
DEXUS chief executive Darren Steinberg reiterated the market guidance for the 12 months to June 30, 2017, of underlying funds from operations (FFO) per security growth of 3-3.5 per cent and distribution per security growth of 2.5-3.5 per cent.
Mr Steinberg also said as part of the evolution of offices, DEXUS has partnered with Guardian Early Learning Group (Guardian) to offer DEXUS customers priority on waitlists over a proportion of available childcare places.
The offering is expected to provide greater convenience and flexibility for working families of DEXUS customers.
Guardian has more than 90 centres across the country, including a number within the DEXUS portfolio, with plans to expand that offering as opportunities arise.
"The partnership comes as demand grows for childcare placements in high-quality early learning programs particularly in inner-city areas. This partnership provides DEXUS customers with easier access to childcare as families transition back to work and seek high-quality learning environments for their children, close to their home or workplace," he said.
DEXUS holds its annual meeting in Sydney on Wednesday.
