As summer draws to a close and people have returned to work, we’ve taken a look at what’s happening with the commercial office sector across Australia.
Office vacancies rates
The Property Council of Australia (PCA) February release of the 2019 Office Market Update, reports that office vacancies have tightened in metropolitan cities across Australia, with Sydney and Melbourne now at incredibly low levels.
Overall, Australian office vacancy fell by 0.7 per cent in the six months to January 2019 to 8.5 per cent.
The tightest markets are the Melbourne CBD, where the vacancy rate fell to 3.2 per cent (down from 3.6 per cent) and the Sydney CBD, which dropped to 4.1 per cent (down from 4.6 per cent). They were accompanied by falls in all capital cities other than Hobart.
The PCA report states that both markets have strong economic fundamentals. However, the Melbourne CBD has seen strong supply of new office space and demand for that space. In the Sydney CBD the combination of a net withdrawal of office space and a tight market has left demand nowhere to grow.
An additional 98,758 square metre of supply was added to the Melbourne CBD over the last six months compared to a 28,212 square metre increase in Sydney CBD. Predictions indicate, Melbourne will account for half of the additional one million square metres of office space coming onto the Australia’s CBD markets over the next three years.
With the exception of Hobart, across the rest of Australia there has been a decrease in office vacancy rates in all capital city markets:
- Hobart 5.9 per cent (previously 5.8 per cent)
- Canberra 11 per cent (down from 12.4 per cent)
- Brisbane 13 per cent (down from 14.7 per cent)
- Adelaide 14.2 per cent (previously 14.7 per cent)
- Darwin 17.2 per cent (down from 21.6 per cent)
- Perth 18.5 per cent (down from 19.4 per cent)
Net tenant demand has increased in both CBD and non-CBD markets, with positive demand in CBD markets for the ninth consecutive period.
The national CBD office market vacancy rate fell to 8.3 per cent (down from 9.1 per cent in the previous period) which is its lowest level since January 2013.
The office market vacancy rate in non-CBD markets also fell slightly to 9.1 per cent (down from 9.2 per cent in the previous period).
New South Wales and Victoria had the top ten best performing non-CBD markets: Parramatta, East Melbourne, Macquarie Park, Crows Nest/St Leonards, Chatswood, St Kilda Road, North Sydney, Newcastle, Wollongong and Southbank, whilst the Sunshine Coast, West Perth and Brisbane Fringe have the highest non-CBD vacancy.
Net absorption was 159,092 square metres during the six months to January 2019, which is on par with the historical average of 158,614 square metres. 243,436 square meters of office space was added during the six months to January 2019.
The PCA ‘Office Market Update’ highlights almost one million square metres of office space will be added to Australian CBD markets over the next three years, with half of this new space being supplied to the Melbourne market, which will grow by more than 10 per cent of its current stock.
The Sydney CBD will see an extra 4 per cent of current stock added through to 2021, followed by Brisbane CBD (4.4 per cent), Canberra (3.2 per cent) and Adelaide (5.1 per cent).