Growth in demand for office space has slowed to its lowest level on record in four years, the latest data says.

In its latest report, the Property Council of Australia said that commercial tenants soaked up a net of just 24,393 in the six months to July.

That represents the lowest level of growth in demand on record since the half-year to January 2015.

Demand was particularly flat in Sydney and Melbourne, although absorption has picked up in Brisbane, Perth and Adelaide.

Nevertheless, national office vacancy rates contracted from 8.5 percent to 8.3 percent as the lower growth in demand was offset by withdrawals – which accounted for 1 percent of the vacancy rate change notwithstanding that vacancies fell only by 0.2 percent.

The results come as corporate tenant demand has been hit by a sluggish economy.

On a seasonally adjusted basis, gross domestic product in Australia grew by just 1.8 percent in the year to March and by only 0.4 percent in the March quarter.

Businesses are feeling the pinch.

The most recent edition of the NAB Business Survey revealed that business conditions are challenging and that profitability remains flat.

The fall in demand comes as office markets around the country will need to absorb a significant volume of stock over the near term.\

During the second half of 2019, an estimated 245,333 square meters worth of new office space is set to come online in CBD markets (333,494sqm across all markets nationwide) – slightly above the six month historic average of 238,140 square meters.

Next year, an additional 603,566 square meters will be added.

Across major capitals:

  • Despite slightly negative tenant demand on a net basis, vacancy rates in Sydney dropped from 4.1 percent in January to 3.7 percent in July on the back of significant withdrawals.
  • Vacancies in Melbourne edged up from 3.2 percent in January to 3.3 percent in July as the effect of new supply and withdrawals largely offset each other.
  • Brisbane’s vacancy rate dropped from 12.9 percent in January to 11.9 percent in July on a combination of higher demand, stock withdrawals and a lack of new stock.
  • Vacancies in Perth contracted from 18.5 percent to 18.4 percent on the back of higher demand.
  • Vacancies in Adelaide dropped from 14.2 percent in January to 12.8 percent in July on the back of withdrawals and higher demand.