Sydney’s most expensive office towers are expected to fall in value by as much as 30 per cent, according to a new report from Goldman Sachs.
The drop in values will be due to both the impact of the pandemic on the economy, and a “cyclical downturn” already well under way before COVID-19.
“The first six months of the 2020 calendar year delivered by far the largest contraction in Sydney CBD office demand in the last 50 years,” said Ian Randall, Executive Director – Real Estate at Goldman Sachs.
“There is much debate at present re: the potential longer-term structural implications of COVID-19 on office space demand.
“We believe investors should be far more concerned by the severe cyclical downturn in office rents and values that has commenced.”
‘Net absorption’ figures forecast that an extra 191,000sq m of CBD office space in Sydney will sit unoccupied by the end of the year, in comparison to end-of-2019 occupancy.
Goldman Sachs forecast vacancy rates in the Sydney CBD will hit 13 per cent by the end of 2022, with median rents estimated to drop by 40 per cent.
“Assuming that values ultimately trend towards marginal replacement cost, this in turn points to a 30 per cent-plus drop in value for high quality Sydney CBD office assets over the next few years.”