The office sector is riding a wave as demand is high and supply tight across the Sydney city, in part boosted by the technology companies.
The strength of the sector has been borne out in the recent profit results of Stockland and Mirvac, which both reported solid numbers.
Both groups said their office vacancies were stable with rents holding up and incentives declining.
Mirvac's chief executive, Susan Lloyd-Hurwitz, said while reflecting the team's focus on active asset management, "we have achieved record leasing by executing over three times the group's annual average within the six month period".
"This has resulted in an improvement in the office portfolio's weighted average lease expiry (WALE) to over six years. Combined with our asset creation capability, repositioning and disposals programme, our portfolio is extremely well placed with 79 per cent weighted to the stronger markets of Sydney and Melbourne and 94 per cent of the assets being Premium and A grade," Ms Lloyd-Hurwitz said.
"In line with our ongoing strategy to create high-quality assets, we have increased our secured office pipeline to $2.1 billion which we expect to deliver long-term recurrent income for the group, superior returns and development profits.
Stockland's chief executive, Mark Steinert, said the commercial property business, which covers office, retail and business parks, delivered solid growth in recurring income.
"We achieved comparable funds from operations growth of 4.5 per cent and comparable underlying profit growth of 3.3 per cent across the portfolio," Mr Steinert said.
Demand was also high to buy assets. The latest one being sold is 420 George Street, with buyers said to be lining up for the prime asset.
According to Matt Whitby, head of research and consulting at Knight Frank, Sydney and Melbourne have dominated the investment landscape during 2015, accounting for 83 per cent of all CBD transactions.
Investor interest remains strong in the other markets but a lack of prime stock is hampering turnover. Total office sales of $15.91 billion were transacted during 2015, which is 8.3 per cent lower than the record high of 2014 when $17.35 billion was achieved.
"While the overall total was lower, investment in CBD markets increased, growing from $9.94 billion to $10.62 billion in 2015. This occurred as investors, particularly offshore buyers, concentrated on the CBD markets of Sydney (58 per cent of CBD sales) and to a lesser extent Melbourne (25 per cent of CBD sales)," Mr Whitby said.
According to Cushman and Wakefield's NSW managing director, Phillip Rockliff, 2015 was a terrific year and "we are set to see tightening incentives and real growth in face rents with each new lease negotiated".
"Whilst NSW's improved economic position has been key to the recovery, one aspect of the growth not commonly noted is the impact of the weaker Australian dollar," he said.
Cushman and Wakefield's national research director, John Sears, said that the Australian dollar has fallen against the US dollar about 35 per cent since 2011 and 10 per cent during 2015.
"With wages and rent making up around 52 per cent of total costs for Australian professional service firms, the softer dollar has made Australia a more attractive location for multinational firms expanding in the region. This means that for an offshore-based tenant, opening an office in Sydney is potentially around 35 per cent cheaper than it was a few years ago," Mr Sears said.
James Patterson, Cushman and Wakefield's chief executive for Australia and New Zealand, said the increase in demand for space was from US and Chinese businesses, including tech firms who either expanded or took up new space in Sydney.
"Chinese firms positioned around the development industry, were not generally locating in the Sydney CBD, but are driving demand in areas like Chatswood and Rhodes," Mr Patterson said.
