Demand for office space trends up

Demand for office space trends upDemand for office space has increased substantially in the past year, according to researcher BIS Shrapnel. Its latest quarterly underlying demand indicator for Australia’s office markets shows demand at 370,000 sqm.The result is a substantial improvement on a year ago, when net absorption was firmly in negative territory. However, demand remains well below the 10-year average of 660,000 sqm.BIS Shrapnel says underlying demand is usually a lead indicator of net absorption, which is the change in occupied floor space from one period to the next. However, there is likely to be a lag before the improvement in underlying demand over the past 12 months becomes apparent in net absorption figures.Although national net absorption remained negative in December 2013, BIS Shrapnel expects it to become positive again by the end of 2014 – but only just.The researcher says weak demand from the business services sector was the key reason for poor underlying demand in 2013, although the latest data shows a rebound in demand for space in that sector.However, the business services sector rebound is offset by falls in employment in other key office occupiers, such as the finance and insurance, and government sectors.Underlying demand for office space will bounce back to long-term averages, BIS says, but this will not happen rapidly. In fact, it says, there is the risk of a softening in underlying demand because of overstated gains in employment in some sectors.BIS expects rising demand for office space to be initially slow, building momentum through the second half of the decade. The demand curve won’t be smooth, either. Markets over-exposed to the mining sector will be weaker, while those weighted towards services and trade will do well. In particular, Melbourne and Sydney office markets will benefit from a recovery in business investment and structural change.