The office market in Sydney is being crunched by a combination of withdrawals and strong demand as stock is taken off the market for conversion into residential units and to make way for the Sydney Metro project.
It the July edition of its Office Market report, the Property Council of Australia said vacancy rates in the Sydney CBD dropped from 6.2 per cent in January to 5.9 per cent in July as the market was crunched by a combination of withdrawals equivalent to 75,821 square metres and ongoing demand which saw net absorption of 22,216 square metres worth of space.
This was the lowest vacancy rate of any capital in Australia and is well below the 10.5 per cent national average.
Leading the charge is A Grade stock, where vacancies dropped from 4.1 per cent to just 3.6 per cent as tenants snapped up an extra 66,313 square metres worth of new space.
In the previously soft Premium Grade, meanwhile, net absorption of 35,900 saw vacancy rates drop from 12.5 per cent to 9.5 per cent.
Throughout Sydney, markets for office space remain tight amid a combination of robust demand led by a strong economy and the withdrawal of stock.
As well as conversions for residential and student accommodation, stock is being withdrawn to make way for the Sydney Metro project.
Moreover, with real-estate services group CBRE expecting a further 50,000 square metres to be withdrawn in 2018, more pain for tenants could be on the way.
In other CBD markets:
- The Melbourne vacancy rate remained steady at 6.5 per cent, with Eastern Core and Docklands precincts having the lowest vacancies of 2.6 per cent and 2.1 per cent respectively.
- Brisbane’s vacancy rate has increased from 15.3 per cent to 15.7 per cent amid a contraction of government leases following the larger increase in demand and consolidation into 1 William Street last half.
- Vacancies in Perth (21.1 per cent) remain above those anywhere else albeit with vacancies having contracted from 22.5 per cent and with demand sitting at three times its historic average.
- Vacancies in Adelaide remain at 16.1 per cent with the market in that city being impacted by a lack of economic and population growth.
- Vacancies dropped from 12.6 per cent to 11.4 per cent in Canberra, where the supply pipeline is limited beyond 2018 and the city has a need to revitalise old stock.