Office vacancies across Australia have reached 27-year highs as new supply has come online at the same time as demand has faltered.
Released on Thursday, the Office Market Report published by the Property Council of Australia shows that national vacancy rates increased from 13.4 percent in January to 14.1 percent in July.
At this level, vacancies are at their highest since 1996 (see chart).
Whilst vacancies in CBDs edged up from 12.6 percent to 12.8 percent, those in non-CBD markets blew out from 15.1 percent to 17.8 percent.
The rise in vacancies has been driven by faltering demand and new supply additions.
In terms of demand, the data shows that leasing activity has been robust in the Brisbane, Perth, Canberra and Adelaide CBDs but has faltered in Melbourne, Sydney and several non-CBD markets.
In Sydney and Melbourne, tenants handed back a net of around 40,000 sqm and nearly 70,000 sqm of leasing space over the period.
Outside of CBDS, demand tanked in Macquarie Park, Parramatta, St Kilda Road, North Sydney and Southbank.
Each of these serve as secondary markets to Melbourne and Sydney and have been impacted by conditions in the two major capitals.
Regarding supply, markets have needed to absorb higher than average levels of stock additions over recent years following a period of strong office building activity in the latter part of the last decade.
Overall, vacancies increased in all major CBD markets except for Brisbane and Canberra.
In non-CBD markets, vacancies blow out in East Melbourne, Parramatta, St Kilda Road, Southbank and North Sydney.
All up, vacancies are above 20 percent in St Kilda Road, Crows Nest/St Leonards, Parramatta and North Sydney.
Going forward, subdued conditions may well persist as sluggish economic conditions may impact demand at the same time as more stock is expected to come online.
All up, 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 expected to experience a higher-than-average supply in the first half of the next year followed by a decline in the subsequent year.
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.
Zorbas notes that demand remains for premium and A Grade stock – a phenomenon he attributes to a desire for organisations to provide attractive spaces for workers.
He says the importance of CBDs should not be underestimated.
“These organisations recognise that maintaining a physical office presence in our cities is vital for conducting business effectively,” Zorbas said.
“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.”
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