ARTICLE BY MICHAEL COOK , GROUP EXECUTIVE , INVESTA PROPERTY GROUP
THE SYDNEY OFFICE MARKET AND THE UBS EVIDENCE LAB .
A short time ago UBS produced an interesting article drawing from its Evidence Lab titled “ Forecasting Sydney and Melbourne Rents ”. The general thrust of the piece was that the market may be overestimating the strength of the current office cycle and the implications for the Australian REITs with Office exposure .
The Evidence Lab approach is admirable in its process , conducting surveys of industry participants , mining the internet , collecting observable data to build a model taking into consideration interest rates , employment growth , vacancy rates , GDP statistics and other measurable factors to try and predict office rentals , rental growth rates and incentives .
Investa adopts a similar approach and some industry veterans ( yours truly included ), have been analysing the data in a similar fashion for the last 30 years .
Whenever anyone says , “ but this time it ’ s different ,” the usual response is either tacit skepticism or straight out disbelief ( manifested by such colloquial requests to share what they are smoking or to provide a urine sample ).
But this time it really is different . There are at least 10 reasons why the UBS Evidence Lab may be under estimating the scale of what is happening in Sydney .
Each of these factors was relatively unforeseen and very difficult to predict or measure , which is precisely why this time it is different . These are not forecastable , cyclical factors .
In a post GFC environment , few owners or developers were prepared to launch into producing more office stock , so when Lend Lease launched Barangaroo , there were two clear effects , firstly , with nearly 300,000 of fringe office space entering the market , other developers were discouraged from competing ( not like in Melbourne where , if one goes , they all go ).
Barangaroo scared off competing supply which allowed an opportunity for the post GFC office market to recover ( 1 ) .
But not fully – post GFC , the demand for office space has been anemic . Lend Lease has had to pull forward demand from 2019 / 20 to fill towers which were completed in 2015 / 16 .