Over one million square metres of newly constructed office stock will be supplied to the Australian office market in 2020, more than half of which will be supplied to Sydney and Melbourne.
According to the Property Council Australian Office Market Report for January 2020, office vacancy rates fell in five of the eight capital city markets surveyed.
Office vacancy in Sydney’s CBD increased slightly to 3.9 per cent mainly due to negative demand with major relocations to Parramatta and tenant consolidations. A large pipeline of premium office space is expected to come onto the market over the next few years, including 150,000 sqm in 2020, which will unlock major opportunities in the CBD.
“Sydney’s office market has traditionally been very tight, and though it has always been strong, opportunities for larger corporations to move to the Sydney CBD have been limited by a lack of available office space of the right size, scale and standard,” said Property Council of Australia’s NSW Executive Director Jane Fitzgerald.
The Melbourne CBD office vacancy rate of 3.2 per cent is the lowest in the nation and at its record-low level. Almost 400,000 sqm of new supply will come to the market in 2020, the biggest annual increase in three decades for which almost 90 per cent is pre-committed.
The Property Council’s Victorian Executive Director, Cressida Wall, has cautioned that the new office stock will do little to relieve pressure on vacancies, particularly in the CBD where C270 planning controls continue to significantly impact the development pipeline.
Office vacancy increased in the Brisbane CBD to 12.7 per cent despite historically strong levels of demand. The headline vacancy figure has been influenced by the addition of the 300 George St tower to the market, but underlying demand is an extremely positive sign for the city’s economy. Absorption over the past six months has been well over double the historical average for the Brisbane CBD.
Chris Mountford, Queensland Executive Director of the Property Council, said, “The headline vacancy figure has been caused by the addition of the 300 George Street office tower to the market, but the underlying strong demand is an extremely positive sign for the city’s economy.”
Perth’s CBD vacancy rate has fallen to 17.6 per cent, with vacancy decreases and positive tenant demand now recorded over six consecutive periods. Tenants took up 32,738 sqm of office space, more than absorbing the 23,718 sqm of new supply. An additional 19,566 sqm will be added in 2020 with no other new space projected until 2023.
Property Council WA Executive Director Sandra Brewer said the numbers, which show vacancy rates over 16 per cent in every grade except Premium (at 8.1 per cent) were trending in the right direction. It was the sixth consecutive fall in vacancy, which is measured every six months.
Adelaide has added almost 30,000 sqm of office supply additions which has seen an increase in the CBD vacancy rate to 14 per cent. Additional supply of almost 27,000 sqm to come online this year and more than 50,000 sqm from 2022 onwards is cause for optimism about the future of the Adelaide CBD.
Property Council SA Executive Director Daniel Gannon said this latest report has set a new record with the largest amount of A-Grade supply coming online in Adelaide in the past seven years.
Canberra’s vacancy rate has fallen to 10.3 per cent, now at its lowest level in over seven years, but still above the historic average of 7.4 per cent. Strong tenant demand at a six-year high drove vacancy down over the period at 28,202 sqm. A further 79,216 sqm is projected to enter the market over the next 12 months.
“Demand for office space is second behind Perth when compared with all other Australian capital cities, with the hottest properties being prime office product, highlighting the private sector demand for office environments that assist in staff retention by creating attractive workplaces,” said ACT Executive Director, Adina Cirson.
Hobart’s vacancy rate has fallen to 4.1 per cent, the third lowest of any capital city after Melbourne and Sydney. All grades of office space recorded positive demand with the highest level of tenant demand since 2006. No new space is expected to come online after 2020 and over the medium term leading to a further tightening in the market.
Tasmanian Executive Director of the Property Council, Brian Wightman, noted that Hobart now has the highest level of net tenant demand since 2006. The Hobart office vacancy rate is also the third lowest of any capital city behind only the Melbourne CBD and Sydney CBD markets.
Vacancy in the Darwin CBD has dropped to 16.8 per cent 6,475sqm of net absorption over the past 12 months and a tightening of vacancy for A grade office space to 7.1 per cent.
“Along with the Cavenagh House demolition, extra space leased in the TIO Centre and Charles Darwin Centre has contracted vacancies in the A Grade segment,” said Northern Territory Executive Director of the Property Council Ruth Palmer.