- CBD vacancies rose from 12.6% to 12.8%, across Australia.
- Sydney and Melbourne falling behind other capital cities.
- Outlook for Australia's office market still largely positive.
The Property Council of Australia’s (PCA) July 2023 Office Market Report has revealed that vacancy rates have bumped slightly over the past six months, resulting from fresh stock entering the market.
Nationally, CBD vacancies rose from 12.6% to 12.8%, while non-CBD areas had vacancies grow from 15.2% to 17.3%.
Australian CBD vs non-CBD Vacancy: 1990 – 2023
Strong demand in most capital cities
Brisbane, Perth, Adelaide and Canberra had buoyant demand for office space. Office space demand in Brisbane increased by 1.4% in the six months to July, which saw the capital city’s vacancy rate dip from 12.9% to 11.6%, as supply failed to match demand.
Similarly, Canberra’s vacancy rate dropped from 8.9% to 8.2%.
CBD net supply & net demand (% of stock) – six months to July 2023
On the other hand, Sydney’s vacancies rose from 11.3% to 11.5%, Perth moved from 15.7% to 15.9%, Adelaide increased from 16.1% to 17%, and Melbourne moved from 14.1% to 15%.
CBD vacancy change – six months to July 2023
Great offices remain in high demand
Property Council chief executive, Mike Zorbas, comments that the figures demonstrate Brisbane has had a stellar last six months, while Sydney and Melbourne continue to face hurdles that need to be addressed.
“Overall, demand for CBD office space nationally is fairly stable, slightly dropping to negative territory after a year and a half of positive demand,” Zorbas says.
“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.”
Zorbas opines that companies are beginning to realise that sustaining a physical office in the city is critical for the effective operation of a business, as the person-to-person contact it facilitates fosters stronger bonds among a team, and benefits organisations, the economy, and Australian society.
Supply issues to improve in late 2024
The national supply of office space in CBD markets is anticipated to remain close to the historical average throughout 2023, before surpassing the average in the latter half of 2024.
Australian CBD six monthly gross supply: July 1990 – July 2026
Non-CBD markets are forecasted to undergo an above-average supply in the first half of 2024, before falling in the next year.
Sublease vacancy was unchanged in the CBD market except for Sydney and Melbourne, which increased over the historical average. The non-CBD market experienced an increase in sublease vacancies as well.
CBD sublease vacancy – six months to July 2023
“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,” Zorbas concludes.
Are offices better than other asset classes?
CBRE‘ advisory and transaction services senior managing director, Mark Curtain, is bullish, pointing out that office leasing activity in Australia has continually outpaced other commercial sectors because organisations are looking to revitalise the workplace and entice employees back to the office.
“Undoubtedly, there is significant pressure within the office sector as historic capitalisation rates come under stress and replacement values escalate. While the current market circumstances are weighing on the sector in the short term, it will lead to supply constraints that will enable the markets to recover and absorb the oversupply that resulted from COVID-19,” Curtain says.
“Office rents continue to grow both on a face and effective basis in most markets across Australia and we are very confident that the outlook is extremely positive. Australia’s economy is a standout globally, driven by incredibly strong international migration and this will continue to drive the demand for high-quality office accommodation that increases collaboration, productivity and workplace culture.
“While it is hard to ignore the significant vacancy rates that headline many of the markets within the US such as New York, Los Angeles and San Francisco, Asia Pacific is in a very different position, and we are confident that the Australian office sector will stabilise and rebound strongly over the next few years. Brisbane, Perth and Sydney will lead the recovery.”
