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PANDEMIC CAUSES MODEST IMPACTS ON OFFICE MARKETS SO FAR

The early stages of the COVID-19 pandemic has so far delivered only a modest effect on office vacancy rates, reflecting the strong base settings for most CBD markets at the outset of the pandemic.

Australian CBD and non-CBD office vacancy increased from 8.3 percent to 9.5 percent over the six months to July 2020 with flat tenant demand overall, according to the Property Council of Australia’s Office Market Report.

Despite the COVID-19 pandemic, aggregate Australian vacancy remains below its historic average, with the key Sydney and Melbourne CBDs sitting at less than six percent vacancy.

Office vacancies are calculated on whether a lease is in place for office space, not whether the tenant’s employees are occupying the space or working from home.

Property Council Chief Executive Ken Morrison said the record low rates of vacancy in our biggest CBD office markets of Melbourne and Sydney had provided a strong buffer against the initial impact of COVID-19.

“The impact of COVID-19 on our CBDs and office markets is still at an early phase, but so far the pandemic has had only a modest impact on vacancy rates,” Mr Morrison said.

“Office markets started this pandemic in good shape, with incredibly low vacancies in Sydney and Melbourne, and strengthening positions in most other markets.

“Vacancy rates have increased over the past six months, but tenant demand has so far been flat, not falling, and overall vacancies are still below the historic average.

“It’s a reminder that office markets have been resilient in the first stage of the pandemic, despite the fact that many office workers have spent months working from home.

“While there is plenty of commentary about the end of the office, the data doesn’t suggest this and there is a long way to go as business works its way through the economic and social impacts of COVID-19. 

“While office vacancies increased over the period, aggregate tenant demand was flat across CBD markets with vacancy increases driven by increases in supply. However tenant demand did vary from market to market, most notably in Sydney where net demand fell 1.2 percent.

“Sublease vacancy in the capital cities – a key metric in falling markets – increased by 0.2 percent, but this is still at modest levels compared to previous downturns.

“The reactivation of our CBDs and office buildings will be an important element of our economic recovery in coming months, and something that all levels of government will need to consider carefully.

“Vibrant CBDs drive investment, growth and productivity and must be part of our national recovery planning,” Mr Morrison said.

The vacancy rate for the Sydney CBD was 5.6 per cent (up from 3.9 per cent in January) and the Melbourne CBD vacancy was 5.8 per cent (up from 3.2 per cent in January).

Melbourne CBD vacancy was most significantly impacted by a 4.6 per cent increase in additional office supply, while the Sydney CBD vacancy was most influenced by 1.2 per cent reduction in tenant demand.

Vacancies in other capital city markets are sitting at Canberra at 10.1 percent, Brisbane at 12.9 percent, Adelaide at 14.2 percent and Perth at 18.4 percent.

All capital city markets recorded lower vacancy in prime over secondary stock.

While almost 400,000 square metres of new office space prepares to come onto capital cities markets in the remainder of this year, the Melbourne CBD will account for 48 per cent of this space of which 82 per cent is already pre-committed.

Almost 1.2 million sqm of office space will be supplied in CBD markets over the next two and a half years.

Highlights

  • Australian office market vacancy increased from 8.3 percent to 9.5 percent
  • Net absorption was -60,227sqm over the six months to July 2020. The historic average is 155,035sqm
  • 353,255sqm of space was added over the six months to July 2020 – above the historical average of 311,113sqm
  • A total of 83,910sqm was withdrawn over the period, just over half the historical average of 163,464sqm
  • By net absorption, the best performing markets were Melbourne CBD, Canberra and Macquarie Park

 

CBD markets

  • Vacancy for the total Australian CBD office market increased from 8.0 percent to 9.2 percent
  • Sydney CBD and Melbourne CBD total vacancy are 5.6 percent and 5.8 percent, respectively. All other CBD markets tracked have double digit vacancy figures: Canberra 10.1 per cent; Brisbane 12.9 per cent; Adelaide 14.2 per cent; Perth 18.4 per cent.
  • Net absorption for the Australian CBD office market was 691sqm. The historic average is 97,885sqm
  • A total of 300,864sqm of stock was added to CBD markets over the period. The historical average is 236,245sqm
  • 60,081sqm was withdrawn. The historic average is 126,678sqm

 

Non-CBD markets

  • Vacancy for the total Australian Non-CBD market increased from 9.2 percent to 10.3 percent
  • Net absorption was -60,918sqm. The historical average is 57,151sqm
  • 52,391sqm of stock was added to Non-CBD markets over the period. The historic average is 74,868sqm
  • 23,829sqm of stock was withdrawn over the period. The historic average is 36,785sqm
  • By vacancy, the top 3 non-CBD markets are East Melbourne (2.2 percent), Parramatta (4.5 percent) and Macquarie Park (6.8 percent)


Future supply - total

  • A total of 631,062sqm of stock is due to be added in the second half of 2020, more than twice the 6-month historic average of 311,113sqm.
  • The historical average 12-month supply of space to the total Australian market is 622,226sqm
  • In 2021 a further 471,006sqm is due to come online around Australia
  • 853,400sqm is due to come online from 2021 onwards
  • A total of 888,828sqm is mooted.

 

Future supply - CBD markets

  • A total of 390,500sqm of stock is due to be added to CBD markets in the second half of 2020 - above the 6-month historic average is 236,245sqm
  • The historical average 12-month supply of space to the total CBD markets is 472,490sqm
  • In 2021, 350,086sqm is due to be added
  • A further 679,315sqm is due to come online from 2022 onwards
  • A total of 436,054sqm is mooted

 

Future supply - Non-CBD markets

  • A total of 240,562sqm of stock is due to be added to Non-CBD markets in the second half of 2020, which is more three times the 6-month historic average of 74,868sqm
  • The historical average 12-month supply of space to the total Non-CBD markets is 149,736sqm
  • 120,920sqm is due to be added in 2021
  • 174,085sqm of space is due to come online from 2022 onwards
  • A total of 452,774sqm is mooted

 

Summary table attached.

Media contact: Matt Francis m 0467 777 220 e mfrancis@propertycouncil.com.au

Vacancy, Australian CBD markets, July 2020

Market

Vacancy rate,

Jul 20 (%)

Vacancy rate,

Jan 20 (%)

Vacancy rate,

Jul 19 (%)

Sydney CBD

5.6

3.9

3.7

Melbourne CBD

5.8

3.2

3.4

Canberra

10.1

10.3

11.1

Brisbane CBD

12.9

12.7

11.9

Adelaide CBD

14.2

14.0

12.8

Perth CBD

18.4

17.5

18.4

Total (all CBD markets):

9.2

8.0

8.0

 

Vacancy, Australian Non-CBD markets, July 2020

Market

Vacancy rate,

Vacancy rate,

Vacancy rate,

Jul 20 (%)

Jan 20 (%)

Jul 19 (%)

East Melbourne

2.2

2.4

2.0

Parramatta

4.5

3.2

2.8

Macquarie Park

6.8

4.6

5.1

North Sydney

8.0

7.6

7.9

Chatswood

8.8

3.7

5.7

Crows Nest/St Leonards

9.0

7.0

6.9

St Kilda Road

9.3

8.7

7.7

Southbank

10.5

9.7

12.4

Gold Coast

13.0

12.8

12.9

Brisbane Fringe

14.2

13.6

13.7

Adelaide Fringe

14.4

14.2

13.1

West Perth

22.1

17.9

17.3

Total (all non-CBD markets):

10.3

9.2

9.5