The Sydney commercial property market continues to experience uncertainty. In the past, landlords and investors were happy to wait out poor economic conditions and rising interest rates. However, this time, the recovery may not occur.
A huge chunk of office space remains vacant in the Sydney CBD, and more businesses will continue to vacate their space through the rest of 2023. Looming above all of this is a wall of debt, with landlords risking devastating losses. That is, if tenants cannot be found for the empty office towers, or if the spaces cannot be repurposed to attract tenants.
What will happen?
It’s hard to say, but we can’t see a wave of commercial tenants rushing back to the CBD any time soon. Therefore, landlords and investors need to ensure they are adapting to the changing needs of businesses and creating an attractive proposition for tenants. If they do not, the debt wall that is looming large will cause headaches.
The worldwide figure for commercial property debt is a staggering $AUD9 trillion, and about half is held by global banks. Back in January, Bloomberg wrote that the global property market faces a $US175 billion debt spiral, calling it a ticking time bomb. There’s no doubt that the general consensus is ominous, both in Sydney and around the world.
The good news in Australia is that our banks have less exposure to this market than their US counterparts. Therefore, the impacts may be less severe here.
The bottom line
Landlords must adapt and find ways to reinvigorate occupancy rates. But it will take innovation and smart thinking; workers will not be coming back to office space that has not adapted to their needs. And the good news for prospective tenants is that this market presents many opportunities for more affordable office space.