Office vacancies across Australia have hit new 28-highs as demand has slumped to record lows, new data suggests.
Released last week, the January edition of the Office Market Report published by the Property Council of Australia indicates that the national office vacancy rate across capital CBD markets edged up from 12.8 percent in July to 13.5 percent in January.
At this level, vacancies are higher compared with any other time since January 1996.
The result was driven by a slump in tenant demand which saw negative net absorption of –201,264 sqm.
This represents the lowest level of net absorption in the survey’s 34-year history.
Demand fell across all markets except for Adelaide – with particularly sharp declines being recorded in Perth.
The faltering in demand has compounded the impact of already challenging conditions which had resulted from higher-than-average levels of new supply additions which came online across 2021 and 2022.
It has led to higher vacancy rates notwithstanding that net supply additions over the past six months (152,336 sqm) were below long-term averages.
Leading the rise in vacancies was Sydney, Melbourne and Adelaide.
From July to January, CBD vacancies in these markets increased from 11.5 percent, 14.9 percent and 17 percent to 12.2 percent, 16.4 percent and 19.3 percent respectively.
Elsewhere, vacancies remained steady in Brisbane (11.6 percent to 11.7 percent) and Canberra (8.2 percent to 8.3 percent). Likewise, Hobart’s vacancy rate marginally increased from 2.5 to 2.8 per cent and Darwin’s from 14.3 to 14.4 per cent.
Meanwhile, vacancies eased in Perth from 15.9 percent to 14.9 percent.
Vacancies were also higher in secondary office space (14.5 percent) than was the case for prime space (12.9 percent).
Outside capital CBDs, meanwhile, vacancies in non-CBD markets increased from 17.3 percent to 17.9 percent.
Going forward, the market may be further challenged as above-average net supply additions are expected over the next six months.
Despite the soft conditions, Property Council of Australia CEO Mike Zorbas says the market remains resilient in the face of the supply came online over recent years.
Zorbas says that outcomes differ across markets and building grades, with a continued preference for high-quality spaces.
He encouraged governments to continue to promote CBDs as vibrant spaces for collaboration.
“The increase in office supply during 2021 and 2022, far surpassing the historical norm, and continued business moves towards high-grade offices explains the results we are seeing,” Zorbas said.
“There is a clear divergence between older, low-quality stock and the new premium office buildings rejuvenating our cities.
“The strength of local economies is also evident in these numbers. The Perth market has enjoyed a drop in vacancy rates while Brisbane and Canberra both remained stable, despite all three cities hovering around their historical average office supply levels over the past few years.
“Sydney and Melbourne continue to reflect differences in quality levels – following robust supply additions in recent years.
“Flight to quality aside, it is crucial for governments to champion the significance of our CBDs and the ecosystems of small businesses they support.
“Face-to-face interactions remain something almost all people benefit from in a social and a work sense and we are starting to see that routinely recognised as complimentary to the welcome dividends of flexible working.”
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