This article is from the Australian Property Journal archive
NEW office supply and a softening in demand pushed up Australia’s CBD vacancy rate again, as Brisbane emerged as a strong performer while Sydney and Melbourne continue to face challenges in the wake of COVID, according to the latest Property Council of Australia Office Market Report.
The national CBD vacancy rate lifted from 12.6% to 12.8% over the six months to July, while non-CBD areas saw an increase from 15.2% to 17.3%.
Five out of the last seven half-yearly reports have now shown supply of office space in the CBDs exceeded the historical average, and has exceeded the average in three of the last seven reporting periods in Sydney and Melbourne. Demand, meanwhile, dropped slightly to negative territory after a year and a half of positive demand.
Sydney’s vacancy rate had a slight increase from 11.3 to 11.5%, while Melbourne, which had seen lower office occupancy since its multiple COVID lockdowns, rose from 14.1% to 15%..
Positive demand for office space was recorded in Brisbane, Perth, Adelaide and Canberra. In Brisbane, where the demand for office space was 1.4%, the vacancy rate declined from 12.9% to 11.6%, while Canberra saw a decrease in vacancy from 8.9% to 8.2%.
Perth’s rose from 15.7% to 15.9%. Adelaide witnessed a rise from 16.1% to 17%.
Property Council chief executive Mike Zorbas said the results show that while Brisbane has demonstrated strong performance over the past six months, Melbourne and Sydney are facing some challenges that require attention.
“Notably, the results show premium and A-grade stock remains in high demand, reinforcing businesses’ desire to provide attractive and enjoyable workplaces for their people,” he said.
“These organisations recognise that maintaining a physical office presence in our cities is vital for conducting business effectively. We know that face-to-face teamwork supports deeper team relationships and brings about positive outcomes for organisations, the economy, and society at large.”
“We need parliaments and public and private sector leaders to recognise and champion the superior relationships, organisational, economic and societal outcomes that come from face-to-face teamwork in cities and towns across our nation each and every week.”
The Property Council expected office space supply in CBD markets is expected to remain close to the historical average throughout 2023, with an anticipated increase above the average in the second half of 2024. Non-CBD markets are predicted to experience a higher-than-average supply in the first half of the next year, followed by a decline in the subsequent year.
Sublease vacancy increased in the non-CBD market but remained steady in the CBD market with only Sydney and Melbourne above the historical average.
Sydney and Melbourne experienced slight vacancy rate increases with over 200,000 sqm of new office space planned in the next three years. However, pre-commitment rates are lower than Brisbane, with only 42% in Sydney and 17.4% in Melbourne already secured by tenants.
Brisbane
Mark McCann, Knight Frank head of office leasing, Queensland said the demand in Brisbane for either existing recycled fit-outs and or spec fit-outs is high.
“The supply of fitted space is the issue with limited options for tenants, and the cost to design and construct new fit-outs continues to increase.
“Gross rents are genuinely still increasing at moderate levels to offset increasing fit-out costs, outgoings increases and valuation pressures, which are starting to impact the rent level.”
Sydney
Many tenants are taking advantage of attractive market fundamentals and moving into higher quality office accommodation in Sydney, according to JLL’s head of office leasing – NSW, Will Hamilton said.
“Contiguous space in the core precinct available today is in short supply, and we are observing good levels of face rental growth, particularly in high-rise rents in premium and better A-grade assets.
Only around 11,000 sqm of office stock projected to complete this year, and almost two-thirds of next year’s larger supply wave is already committed. Beyond that, the next office development is scheduled to complete in 2027.
Melbourne
CBRE’s Ashley Buller, head of office leasing, Victoria said that while the overall market vacancy rate continues to rise, office sentiment on the ground is “cautiously optimistic”.
“The trend of overall deal size increasing has continued as larger tenants gain further confidence in the longer-term needs around office occupancy and subsequently their office size.”
“Rents have remained resilient during H1, and we anticipate this will continue in H2. However, due to the increase in supply, incentives have remained strong and will likely increase further
A big percentage of Melbourne’s largest transactions continue to take place in Docklands, with many of these deals in sublease space.
Perth
Perth CBD premium grade effective rents grew by 11.1% in 2022, the highest increase since 2011, with forecasts of a further 7.8% in 2023, according to CBRE.
Adelaide
Enquiry and deal levels for small sub 250 sqm high-quality spec suites remains strong, particularly in the A-grade sector, which, coupled with the increase in fit-out costs, has seen more tenants look to landlords to offer completed suites, according to Knight Frank’s Martin Potter.
Canberra
JLL’s director, office leasing – ACT, Aaron Green said Canberra’s office leasing landscape in 2023 has been one of resilience, reflected in the market vacancy rate remaining in single digits despite solid levels of development activity over the past year.
“Beyond 2023, there will be a moderation of new supply over the next few years. The next wave of new office developments is likely to come online 2026 and beyond which will place upward pressure on vacancy rates and market incentives.”
