Office vacancies have edged up over the last six months as demand faltered, new supply additions came in at a strong pace and less stock was withdrawn than is typically the case.
Releasing the July edition of its July office market report, the Property Council of Australia said national office vacancy rates for CBD markets increase from 8.0 percent in January to 9.2 percent in July.
Leading the way was Melbourne, where vacancies jumped from 3.2 percent to 5.8 percent as robust supply increases saw a 4.2 percent rise in the overall volume of available stock.
In Sydney, meanwhile, vacancies increase from 3.9 percent to 5.6 percent on softer tenant demand.
Overall, the rise in vacancies can be attributed to a combination of factors.
A softening of demand in the early stages of the coronavirus has seen net absorption slip into negative territory (-60,227 sqm) against a historic average take-up of 155,035 sqm.
New supply (net), meanwhile, came in at 353,255 sqm – slightly above the historic average of 311,113 sqm.
Finally, stock withdrawals (83,910 sqm) came in at just over half the historic average of 163,464 sqm.
Furthermore, markets may be challenged going forward as an unusually large volume of supply is expected to come online at the same time as demand will be impacted by COVID.
Across all markets (CBD and regional), a total of 631,062 sqm is due to be added to supply in the second half of 2002 – more than twice the six-month average of 311,113 sqm.
Despite all this, Property Council of Australia Chief Executive Office Ken Morrison said the impact of COVID on overall office demand had been modest thus far.
Despite the COVID-19 pandemic, aggregate Australian vacancy remains below its historic average, with the key Sydney and Melbourne CBDs sitting at less than six percent vacancy,” Morrison said.
(Note: office vacancies are calculated on whether a lease is in place for office space, not whether the tenant’s employees are occupying the space or working from home.)
“The impact of COVID-19 on our CBDs and office markets is still at an early phase, but so far the pandemic has had only a modest impact on vacancy rates,” Mr Morrison said.
“Office markets started this pandemic in good shape, with incredibly low vacancies in Sydney and Melbourne, and strengthening positions in most other markets.
“Vacancy rates have increased over the past six months, but tenant demand has so far been flat, not falling, and overall vacancies are still below the historic average.
“It’s a reminder that office markets have been resilient in the first stage of the pandemic, despite the fact that many office workers have spent months working from home.
“While there is plenty of commentary about the end of the office, the data doesn’t suggest this and there is a long way to go as business works its way through the economic and social impacts of COVID-19.
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