- Tenant demand lifted an average of 0.5 per cent across Australian CBDs
- Strong employment levels are bolstering demand for offices
- Flight to quality was a theme that took off
From pandemic hullabaloo to humbug – it seems the death knell for offices never came as the latest figures from the Property Council’s Office Market Report showed ‘healthy signs’ for our CBDs despite shadow lockdowns, extreme weather, and more.
Tenant demand lifted an average of 0.5 per cent across Australia’s CBDs, with new offices coming online pushing aggregate vacancy rates up in capital city and non-capital CBDs.
Property Council Chief Executive Ken Morrison said the figures were heartening given we are living through a third year of the COVID-19 pandemic.
“In a healthy sign for our CBDs, the office market continues to defy previous dire predictions, with demand still in positive territory after nearly three years of the pandemic,” said Mr Morrison.
“Demand for office space was strongest in Brisbane at more than three times historic average, with Sydney, Perth and Adelaide also above average, while demand grew by 0.1 per cent in Melbourne and dropped in Canberra by 0.1 per cent.
“While the Australian office vacancy increased by 0.8 per cent to 12.9 per cent over the six months to July 2022, it’s new office space that is driving this outcome, not businesses wanting less office space.”
The supply of office space across Australia’s capital cities has been above the historical average in four of the last five reporting periods, the report shows. “All capital city CBD markets experienced new supply increases, a combined 1.2 per cent, but supply is forecast to taper off in coming years,” added Mr Morrison.
In hindsight, it seems the pandemic anxiety about offices capitulating to work-from-home turned out to be much ado about nothing.
Knight Frank’s national head of listing, Andrea Roberts, said that while physically being in the office may have been challenging at times, commitments and transactions have remained steadfast:
“Inspection levels in all markets are strong, even when compared to pre-COVID levels of activity. The fact that occupancy levels in each of the CBDs, together with sublease opportunities, have bounced around during 2022 due to a confluence of bad news stories due to floods, excessive rain, strikes, elevated sick leave and a hard school holiday break hasn’t really impacted tenant commitments and transaction levels.
Andrea Roberts, Knight Frank
“Occupiers continue to look through these immediate issues to on focus on the need for a quality environment in their workspace longer term.”
Mr Morrison said the strong demand for office space “… has been underpinned by strong employment and the recognition that an office in city is fundamental to the success of many businesses.”
Historically low levels of unemployment have also created new challenges for hiring businesses.
“With our historically low unemployment rates at present, the ability to attract talent is probably the biggest challenge facing most companies across the country. In the toolkit to attract the best and the brightest talent, what is highly desired is great design, well built, environmentally friendly, light filled, amenity heavy workplaces, combined with a hybrid working policy,” said Ms Roberts.
“We are seeing more and more employers set their hybrid policies and use technology to manage physical and virtual presences on a day-to-day basis.
“It’s not a ‘work from home or in the office’ discussion – it’s both, it’s here to stay and future thinking organisations are ensuring that workplaces are fit for purpose with new technology and team configurations to make this seamless and equitable for all employees.”
That emphasis on having a great place to work was evident in Sydney, Property Council’s NSW executive director Luke Achterstraat said “The office market continues to defy previous dire predictions showing a strong flight to quality with a sharp rise in premium office space demand.”
Mr Achterstraat added that “International capital is voting with its feet, citing our office markets as some of the safest havens for investment in the region.”
The flight to quality sentiment was similar in the West, Savills‘ national head of WA, Graham Postma, said:
“Job advertisements, a strong forward leading indicator of demand, are at record levels and exceed those seen in the previous boom of 2007.”
“As the ‘war for talent’ rages the ‘flight to quality’ trend continues as tenants seek to ensure their offices offer existing and potential staff the best working environment. This is clearly demonstrated by the fact that net absorption has been focused on the highest quality grades in both the CBD and West Perth markets.”
