National office market vacancy rate falling says new report

New office supply across Australia is slowing to about half the historic average according to the latest Office Market Report.

The Property Council Australian Office Market Report is the country’s definitive office market report tracking over 5,300 office buildings covering 25 million square metres of office space nationwide.

The Australian CBD office vacancy rate fell over the six months to July 2017 from 10.9 per cent to 10.5 per cent. It continues a four-year run in the 10 per cent to 11 per cent range.

The total Non-CBD vacancy rate decreased from 9.7 per cent to 9.5 per cent over the last six months due to withdrawals. In markets such as St Kilda Road and Macquarie Park, we are seeing older office stock transitioning into residential stock.

While national demand is positive, it is also less than the historic average. Net absorption was 60,075 sqm for the six months to July 2017 which is less than half the historic long-term average of 162,801 sqm.

“Positive tenant demand for office space has been the big driver of office markets around the country over the last six months, and this will continue with limited new supply on the horizon,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“We saw positive demand for office space in every CBD except Brisbane, and across a number of the non-CBD markets.

“While vacancy rates remain high in some centres, they are no longer facing significant new office supply coming on to the market. 

“Almost three quarters of the new CBD office supply over the next two and a half years is coming in Sydney and Melbourne, the cities which are best placed to handle it. In aggregate terms, Australia’s CBDs will receive half the historic levels of new supply over the next two and a half years.

“We continue to see great divergence between the non-mining state office vacancy rates of Sydney CBD (5.9 per cent) and Melbourne CBD (6.5 per cent) and the capitals in the mining states Perth CBD (21.1 per cent) and Brisbane CBD (15.7 per cent).”

The Sydney CBD vacancy rate fell from 6.2 per cent to 5.9 per cent continuing its run as the CBD with the lowest vacancy rate. The fall was due to withdrawals of office space from the market and positive tenant demand. Over the coming six months, Sydney CBD will provide 48,595 sqm of new stock.

The Melbourne CBD vacancy rate has remained steady at 6.5 per cent. Eastern Core and Docklands precincts have the lowest vacancy rates in Melbourne at 2.6 per cent and 2.1 per cent respectively, while Southbank’s vacancy decreased from 4.1 per cent to 3.3 per cent as a result of 4,595 sqm of stock withdrawals. While only 18,939 sqm of new stock is expected for the remainder of 2017 across Melbourne CBD, 92,400 sqm is expected in 2018 and 168,600 sqm in 2019. This represents 6.2% of total stock and is 78% pre-committed.

The Brisbane CBD vacancy rate has increased from 15.3 per cent to 15.7 per cent. Much of this can be attributed to the contraction of government leases following the larger increase in demand and consolidation into 1 William Street last half.

The Perth CBD vacancy rate has retreated from its peak of 22.5 per cent in January to 21.1 per cent. While this is still the highest vacancy rate in Australia, the good news is that in the first six months of 2017, demand was three times the historic average. With very little new stock expected until late 2018, Perth is showing every indication that it is stabilising.

The Adelaide CBD vacancy rate inched down from 16.2 per cent to 16.1 per cent. The vacancy rate is over 30 per cent higher than the Adelaide historic average. While it appears that some older stock is transitioning into residential accommodation, the market requires economic and population growth delivered across South Australia.

The Canberra vacancy rate fell from 12.6 per cent to 11.4 per cent. The supply pipeline beyond 2018 is extremely low indicating that Canberra has a serious issue around attracting property investment and needs to revitalise old stock.

For more information or to purchase the July 2017 Office Market Report, click here.

Media contact:  Paul Ritchie | E pritchie@propertycouncil.com.au