Sydney, Melbourne lead surge in office demand

A surge in demand for office space in the Sydney and Melbourne CBDs has pushed average national office vacancies down and is tangible evidence of a national economy well in transition from the mining investment boom.

The national average office vacancy rate decreased over the last six months from 10.8 percent to 10.4 percent but the results were mixed across the capital cities, according to the Property Council of Australia’s latest Office Market Report released today.

Demand for office space in Melbourne and Sydney CBDs was more than double historical averages in the six months to July 2015, while the Perth vacancy rate continued to climb and is now the highest in Australia.

Brisbane CBD saw a decline in the office vacancy rate for the first time in three years but demand remained weak. Canberra recorded a slight drop but still has the second highest vacancy rate nationwide, while Adelaide remained unchanged at 13.5 per cent.

Property Council of Australia Chief Executive Ken Morrison said the strong demand was a positive sign that the economic transition governments are looking for is actually underway.

“Surging demand for office space in Sydney and Melbourne is one of the strongest signals yet that Australia’s transition from a mining investment dominated economy is taking hold,” Mr Morrison said.

“Office demand in the Sydney and Melbourne CBDs is double the historical average, driving office vacancies down and demonstrating that the non-mining service sector is growing.

“In another healthy sign, office vacancy rates actually fell in 17 of the 23 markets measured by this report.

“However demand for office space fell significantly in both Brisbane and Perth CBDs, with significant new supply due to arrive in both cities over the next two years.

“Capital city office markets seem to be separating into a three-speed reality, with strong demand in Sydney and Melbourne, weak demand and more supply to come in Brisbane and Perth, while Canberra and Adelaide hold their ground.

“This reality will have different implications for the market and for policy makers in each city.

“Sydney and Melbourne need governments to invest in infrastructure and the public domain to support the work of the private sector.

“Other cities need more support to stimulate economic activity.

“More needs to be done to revitalise or re-purpose ageing product, particularly lower grade office stock, into new apartments, hotels and other uses.

“This means creating a business and taxation environment that encourages investment.”

Over the next six months almost half a million square metres of new stock – three times that delivered over the past six months – will be supplied across Australian CBD office markets, notably in Sydney, Brisbane, Perth and Melbourne.

In the non-CBD market, North Ryde, North Sydney, Gold Coast and Chatswood were the best performing areas over the reporting period.

Detailed analysis below.

Media contact: Fiona Benson |M 0407 294 620 |E [email protected]

 

Purchase the Office Market Report here!

 

Key findings:

• Australia’s office market vacancy decreased over the six months to July 2015 from 10.8 percent to 10.4 percent.
• Demand has increased, and is positive for the third consecutive period. Demand is concentrated in Sydney and Melbourne, and vacancy rates are highest in Canberra and Perth.

• Future supply shows a total of 7,342sqm of stock is due to be added in the second half of 2015, more than one and a half times the historical average. In 2016 a further 465,207sqm is due to come on-line around Australia.
• Sydney and Melbourne are well-placed to absorb new supply, whereas the new stock will pose a challenge in Perth and Brisbane.