Vacancy rates in Australia’s capital cities have increased modestly over the last six months, driven by an uptick in new office supply, according to fresh data from the Property Council of Australia.
The July 2023 edition of the Office Market Report, which is released twice a year, showed overall CBD vacancy increased from 12.6 to 12.8 per cent nationally. Non-CBD areas saw an increase from 15.2 to 17.3 per cent.
While the Australia-wide vacancy rate increased, the report shows that in five out of the last seven half-yearly reports, the supply of office space in our CBDs exceeded the historical average. The supply of office space has exceeded average in three of the last seven reporting periods in Melbourne and three of the last seven reporting periods in Sydney.
Positive demand for office space was recorded in Brisbane, Perth, Adelaide and Canberra. In Brisbane, where the demand for office space was 1.4 per cent, the vacancy rate declined from 12.9 to 11.6 per cent, while Canberra saw a decrease in vacancy from 8.9 to 8.2 per cent.
Sydney’s vacancy rate had a slight increase from 11.3 to 11.5 per cent, and Perth’s rose from 15.7 to 15.9 per cent. Adelaide witnessed a rise from 16.1 to 17 per cent, and Melbourne’s vacancy rate increased from 14.1 to 15 per cent.
Property Council Chief Executive Mike Zorbas said the results show that while Brisbane has demonstrated strong performance over the past six months, Melbourne and Sydney are facing some challenges that require attention.
“Demand remains strong in four of the six capital cities captured in our detailed survey, but it has subsided across the big two, Sydney and Melbourne,” Mr Zorbas said.
“The office market in Brisbane is particularly robust, with tenant demand outpacing available supply, decreasing the vacancy rate from 12.9 to 11.6 per cent.
“Overall, demand for CBD office space nationally is fairly stable, slightly dropping to negative territory after a year and a half of positive demand.
“Notably, the results show Premium and A Grade stock remains in high demand, reinforcing businesses’ desire to provide attractive and enjoyable workplaces for their people.
“These organisations recognise that maintaining a physical office presence in our cities is vital for conducting business effectively. We know that face-to-face teamwork supports deeper team relationships and brings about positive outcomes for organisations, the economy, and society at large.
“There have been big advances in the inclusiveness of our workplaces through flexibility in ways of working over the past decade, but we also need the balance of governments leaning in and supporting the vibrancy of our CBDs.
“Thriving CBDs are an essential part of our national economic prosperity and support the viability of large-scale public transport systems and investments in public amenities.
“We need parliaments and public and private sector leaders to recognise and champion the superior relationships, organisational, economic and societal outcomes that come from face-to-face teamwork in cities and towns across our nation each and every week,” he said.
The projected supply of office space in CBD markets is expected to remain close to the historical average throughout 2023, with an anticipated increase above the average in the second half of 2024. Non-CBD markets are predicted to experience a higher-than-average supply in the first half of the next year, followed by a decline in the subsequent year.
Sublease vacancy increased in the Non-CBD market but remained steady in the CBD market with only Sydney and Melbourne above the historical average.
“Sydney and Melbourne experienced slight vacancy rate increases with over 200,000 sqm of new office space planned in the next three years. However, pre-commitment rates are lower than Brisbane, with only 42 per cent in Sydney and 17.4 per cent in Melbourne already secured by tenants,” Mr Zorbas said.
For the full details about the Office Market Report and July 2023 results, click here.
Key Figures
CBD office vacancy: 12.8 per cent
Non-CBD office vacancy: 17.3 per cent
CBD net absorption six months to July 2023: -21,740 sqm
CBD space added six months to July 2023: 190,057 sqm
CBD future supply in second half of 2023: 227,676 sqm