|New office supply across Australia is slowing to about half the historic average according to the latest Property Council Australian Office Market Report, which tracks 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% to 10.5%, continuing a four-year run in the 10% to 11% range.
The total Non-CBD vacancy rate decreased from 9.7% to 9.5% over the last six months due to withdrawals. In markets such as St Kilda Road (Melbourne and Macquarie Park (Sydney), older office stock is being transitioned 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 – 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 75% 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%) and Melbourne CBD (6.5%) and the capitals in the mining states Perth CBD (21.1%) and Brisbane CBD (15.7%).”
The Sydney CBD vacancy rate fell from 6.2% to 5.9%, continuing its run as the CBD with the lowest vacancy rate. 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%. Eastern Core and Docklands precincts have the lowest vacancy rates in Melbourne at 2.6% and 2.1% respectively, while Southbank’s vacancy decreased from 4.1% to 3.3% 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% to 15.7%, much of this attributable to the contraction of government leases following the larger increase in demand and consolidation into 1 William Street.
The Perth CBD vacancy rate has retreated from its peak of 22.5% in January to 21.1%. 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% to 16.1%, although 30% 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% to 11.4%. 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.