A surge in demand in Brisbane and Melbourne has seen office markets hold steady overall despite a flood of new supply coming online, the latest report has revealed.

In its latest report, the Property Council of Australia says office vacancy rates in CBD markets edged downward from 11.0 percent in July last year to 10.9 percent in January as net supply additions of 90,924 sqm (CBD markets only) were matched by the net absorption of 99,574 sqm.

Leading the way was Brisbane, where vacancy dropped from 16.9 percent to 15.3 percent in spite of the addition of the 260 metre 1 William Street to the skyline as demand ran at five times historic averages.

Demand was also strong in Brisbane Fringe markets whilst the Gold Coast and Sunshine Coast experienced sharp declines in vacancy.

The other hot area is Melbourne, where vacancies plummeted from 7.0 percent to 6.4 percent as a whopping 109,612sqm of net new space was taken up in places such as Docklands, Flagstaff and Western Core.

With less than 100,000 sqm of new set to come online over the next two years, there are concerns for tenants that vacancies in Melbourne will tighten further.

Already, precincts such as Eastern Core, Docklands and Flagstaff have vacancies of 3.1 percent, 3.3 percent and 3.7 percent.

Elsewhere, however, markets are soft in resource states such as Western Australia, South Australia and the Northern Territory.

Courtesy of weak demand, Perth and Darwin share Australis’s highest office vacancy rates at 22.5 percent apiece whilst vacancies in Adelaide (16.2 percent) have reached eighteen year highs on the back of weak demand and supply additions.

In Perth, the Council says it expects the market to stabilise going forward as the pipeline of new supply is limited and building activity will revolve around building upgrades and re-adaption.

In other cities, vacancies in Canberra have fallen amid the withdrawal of stock whilst those in Hobart remain steady.

Finally, Australia’s biggest city of Sydney continues to have the tightest market of all although vacancies have risen from 5.6 percent to 6.2 percent on the back of slack demand.

Despite the flood of new supply in the past six months, Property Council of Australia chief executive officer Ken Morrison said vacancy rates across many capitals would fall over coming years amid a limited supply pipeline.

office vacancy

“Australia’s divergent office markets are about to be hit with a super-cycle of low supply”, Morrison said.

“Australian CBD markets are due to have only 462,000 sqm of space come online over the next three years. This is just half the amount of new supply CBD markets have experienced over the last 18 months.

“With supply such a minor part of the picture in coming years, demand will drive vacancy rates down across our CBDs.”