The Property Council of Australia’s ‘July 2023 Office Market Report’ found that vacancy rates vary considerably across the nation’s capital cities, with Sydney and Melbourne experiencing some challenges that require attention, while other CBDs boom.
Property Council Chief Executive, Mike Zorbas said: “Nationally, the results identified overall demand for CBD office space as fairly stable and show Premium and A-Grade stock still in high demand, [thereby] 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 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 public- and private-sector leaders to 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.
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 2024, followed by a decline in 2025.
Key national statistics from the report:
- CBD office vacancy: 12.8%;
- Non-CBD office vacancy: 17.3%;
- CBD net absorption six months to July 2023: -21,740 sqm;
- CBD space added six months to July 2023: 190,057 sqm; and
- CBD future supply in second half of 2023: 227,676 sqm.
Sydney
Sydney is experiencing subdued office space demand, indicating the CBD’s strong contribution to the national economy shouldn’t be taken for granted.
Property Council’s NSW Executive Director, Katie Stevenson cited the report as reflecting a “resilient Sydney market with the pipeline of new stock set to hit the market in 2023 and 2024. The office vacancy rate has had a slight increase from 11.3% to 11.5% – a strong indicator in a challenging market that people still see face-to-face work as essential.
“Businesses realise that to attract and retain talent they need to provide an option for employees to come together to form those collaborative and social connections that create high-performing teams.
“Sustaining the Sydney CBD’s pivotal role as the engine-room behind the Australian economy requires ongoing investment in the CBD and improved cooperation between government and private-sector. These results demonstrate challenges around demand across the Sydney CBD and are reflective of the need to ensure we don’t become complacent.”
Perth
Despite 67,479 sqm of space coming online in the last six months, Perth’s office vacancy rate has remained stable at 15.9%, with only a 0.2% increase since January 2023.
Property Council WA Executive Director, Sandra Brewer stressed that the headline numbers hide a more significant story, as the data revealed a nation-leading surge in demand for the Perth CBD, adding: “Demand has soared beyond the historical average by more than double, showcasing the strength of Perth’s strong post COVID-19 return to work and the enduring significance of the CBD as a premier destination for businesses.”
Commenting on the market trends, Cushman & Wakefield Head of Leasing WA, Roly Egerton-Warburton, expressed his optimism, noting the strengthening of commercial terms in Perth CBD: “Perth is leading the charge on occupancy nationwide, which mirrors the performance of our economy. WA is now the world’s largest producer of lithium, gold and iron ore and the direct link from the resources sector to CBD tenant demand is very clear. Cushman & Wakefield are very bullish about the coming 12 months.”
The data also indicates a continued decline in sublease vacancy rates, keeping Perth’s rate well below the historical average.
“A low subleasing rate is a positive indicator of market stability and confidence, suggesting businesses occupying office spaces are confident in their growth and are optimising spaces effectively,” Brewer continued. “Flexible workspace has also emerged as a popular solution for businesses, as we witness a growing trend of offices seamlessly integrating these flexible offerings within their premises.
“High-quality innovative office spaces continue to invigorate the Perth office market, providing businesses with modern and adaptable workspace options to cater to their evolving needs. This ongoing transformation promises a vibrant future for Perth’s office landscape.”
Brisbane
Brisbane’s office market defied national headwinds as one of only two capital cities to record a vacancy decrease. Over the six months to July 2023, Brisbane’s CBD vacancy rate fell from 12.9% to 11.6%, due to continual strong demand from businesses looking to invest in Brisbane and Queensland more broadly.
Queensland Executive Director of the Property Council Jen Williams said: “With nearly 30,000 sqm of net absorption over six months, Brisbane’s office market had defied the downturns being experienced in other capital cities, highlighting the confidence of companies to invest in Brisbane despite current economic headwinds. Brisbane’s CBD experienced its third consecutive vacancy decrease, underpinning the positive sentiment from businesses who are buoyant about Brisbane’s future and want to buy into the momentum our state is experiencing.
“The demand for space isn’t isolated to the CBD, with Brisbane’s fringe recording a decrease in vacancy, albeit marginal.
“While the interest in Brisbane is welcome, servicing demand will be problematic, with developments being challenged by construction constraints and labour pressures.
“Brisbane has the lowest level of future supply of all cities, with no new supply set to come online in the CBD until 2025 when 360 Queen Street and 205 North Quay are expected to be complete. Following that, there’s another two years until Waterfront Brisbane is completed in 2027. As such, supply will likely remain limited for the foreseeable future.
“This latest set of data clearly shows that businesses and investors are very interested in Brisbane, however, if we wish to maximise this and ensure our economy benefits from the companies looking to move here, we need to have space for them to actually move to.”
ACT
The strong demand for office space in Canberra, but drops in Sydney and Melbourne, underscores the need for government leadership to arrest diminishing trends in CBD office occupancy.
The Report showed that in five out of the last seven half-yearly reports, the supply of office space in our CBDs exceeded the historical average.
Canberra, along with several other capital cities, experienced positive demand for office space, recording a decrease in vacancy from 8.9 to 8.2%.
Melbourne
The report showed that Melbourne’s vacancy rate increased from 14.1 to 15%, suggesting that the Melbourne CBD office market requires attention.
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 17.4% in Melbourne already secured by tenants.