Australia’s national office market vacancy rate fell from 10.5 per cent to 10.4 per cent with demand for new office space centred in Sydney, Brisbane, Canberra and Melbourne according to the Property Council’s half yearly Australian Office Market Report.
The Australian Office Market Report highlights significant variances between our major cities and reflects the difference in the economic performance of the states.
“Sydney and Melbourne continue to perform strongly with vacancy rates of 5.6 per cent and 7.0 per cent respectively. In Perth, the vacancy rate is 21.8 per cent which is the worst vacancy rate in over 20 years and in Brisbane it has risen to 16.9 despite net demand currently at levels five times its historic average”, said Ken Morrison, Chief Executive of the Property Council.
“There is no compelling Australian story in this report. What we are seeing is a major divergence of performance between the states, between CBD and non-CBD markets and in the supply outlook for each city.
“Nationally, the CBD market vacancy rate increased slightly due to supply additions and in non-CBD areas it fell due to market withdrawals. The CBD supply additions are in line with historic averages but we saw a contraction of 30,100 sqm in non-CBD markets compared with the January 2016 period.
“Overall Australian office demand is currently tracking under half the historic average and in the second half of 2016 we are expecting 520,800 sqm in new stock to be added which is 60 per cent higher than the historic average.
“Within the overall national numbers, we are seeing the major CBD markets increasingly moving in their own orbits.
In Sydney, we witnessed the strongest demand of all the capital cities with the office vacancy rate falling from 6.3 per cent in January to 5.6 per cent in July 2016. Sydney has six of Australia’s top ten strongest performing markets by vacancy.
Likewise Melbourne saw its vacancy rate fall from 7.8 per cent to 7.0 per cent. This was due to a combination of positive demand and withdrawals. This market could further tighten over the coming year with 87,800sqm of new stock forecast for this year and none for next year.
The Brisbane vacancy rate hit a record 16.9 per cent and this was driven by 115,000 sqm coming on line over the past six months – with much of it already absorbed. While on the surface this result appears very negative, it should be recognised that net demand for CBD space is currently at five times its historic average.
Perth recorded the highest vacancy rate in over 20 years at 21.8 per cent. This is the result of new completions and weakening demand. The good news for this market is that little new stock is expected until late 2018 meaning that from here on it is demand that will drive office vacancy.
Adelaide CBD also witnessed a rise in vacancy levels from 14.1 per cent to 15.8 per cent. With 19,000 sqm coming online in the second half of 2016, the biggest challenge for the office market is one of demand. Recent announcements from the State Government on taxation and planning settings have come at the right time.
In Canberra, the vacancy rate fell from 14.6 per cent to 13 per cent reflecting a combination of positive demand and withdrawals. A and B grade occupancy rates have fallen reflecting a clear preference for higher grade office space.