The Property Council of Australia’s most recent Office Market Report indicates that the demand for office space remains high despite predictions that it would plummet in the face of the pandemic.
Tenant demand has lifted by an average of 0.5 percent across the nation’s CBDs. New office buildings that have become available increased vacancy rates up in both capital and non-capital CBDs.
Property Council Chief Executive Ken Morrison says the figures are heartening given the early projections of office vacancies.
“In a healthy sign for our CBDs, the office market continues to defy previous dire predictions, with demand still in positive territory after nearly three years of the pandemic,” he says.
“Demand for office space was strongest in Brisbane at more than three times historic average, with Sydney, Perth and Adelaide also above average, while demand grew by 0.1 percent in Melbourne and dropped in Canberra by 0.1 percent.
“While the Australian office vacancy increased by 0.8 percent to 12.9 percent over the six months to July 2022, it’s new office space that is driving this outcome, not businesses wanting less office space.”
The supply of office space across Australia’s capital cities has been above the historical average in four of the last five reporting periods, the report shows.
“All capital city CBD markets experienced new supply increases, a combined 1.2 percent, but supply is forecast to taper off in coming years,” Morrison says.
According to Morrison, initial predictions of a crash in demand for office space and a spiking vacancy rate hasn’t come to fruition.
“This has been underpinned by strong employment and the recognition that an office in the city is fundamental to the success of many businesses.”
The July edition of Office Market Report outlines overall CBD vacancy has increased from 11.3 to 12 percent, while non-CBD areas saw a rise from 13.9 to 15.2 percent.
Brisbane and Adelaide both recorded vacancy decreases, from 15.4 to 14 percent and 14.5 to 14.2 percent respectively, the only two CBDs in which supply didn’t outstrip demand.
The vacancy rate rose in the other capital cities, from 6.3 percent to 8.6 percent in Canberra, 9.3 percent to 10.1 percent in Sydney, 11.9 percent to 12.9 percent in Melbourne and 15 percent to 15.8 percent in Perth.
Sublease vacancy increased slightly in both the Australian CBD and non-CBD markets, with Melbourne responsible for more than half of all CBD sublease vacancy. Future supply in CBD markets is expected to remain below the historical average until 2025, with non-CBD markets expected to be above in 2023.
“While the office market has proven to be resilient and demand is in positive territory, our CBDs still need attention,” Morrison says.
“While demand for space is increasing, the number of actual office workers in our city centres is well below pre-pandemic levels and threatens the ecosystem of cafes, restaurants and retailers that help make our CBDs such special places.
“The recovery in our CBDs needs to be top of mind for governments and businesses even as we deal with elevated levels of COVID-19 in the community.”
For the full details about the Office Market Report and July 2022 results, click here.
Image: Woods Bagot's 405 Bourke Street, Melbourne commercial project.