Why Should we Worry About Vacant Offices? 1

Monday, February 16th, 2015
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Office market vacancy rates rarely capture the community’s imagination – but they should.

The strength of a city’s office market reflects its general economic well-being.  As the Property Council’s chief executive, Ken Morrison, says empty offices provide “a window into the soul of our shifting economy.”

Last week, the Property Council released its biannual Office Market Report – Australia’s most comprehensive audit and analysis of office market data nationwide.

The report finds strong demand for office space in Sydney and Melbourne, declining demand and increasing vacancies in Brisbane, Perth and Canberra, and little change in Adelaide, Hobart and Darwin.

While Sydney recorded the highest demand for new office space in four years, and the lowest office vacancy rate of all the capital cities, other cities haven’t fared so well. Brisbane and Perth are now facing the highest office market vacancy rates in the country, along with Canberra, at 15.6, 14.8 per cent and 15.4 per cent respectively.

Office market vacancy isn’t just a problem for commercial property owners; it’s a problem for every small business owner whose livelihood depends on customers attracted to the CBD.

Each empty desk represents one less person buying their daily coffee, lunching with colleagues, or ducking out to fill a pharmacy script or get their shoes reheeled. It means one less person spending money to keep their city’s economy ticking over.

So, what can be done?

In Melbourne, the Postcode 3000 strategy has been spectacularly successful and is considered a model for other cities to follow.

Kicking off in 1992, Postcode 3000 transformed Melbourne’s CBD from an ageing commercial district with a high office vacancy rate into a vibrant city centre. Central to the strategy was attracting 3,000 residents into the CBD postcode within a decade. Fast forward to 2015 and that postcode is now home to around 30,000 residents.

One of the program’s major successes was facilitating the conversion of obsolete office buildings to new uses, fast-tracking the withdrawal of these buildings from the office market. More than 500,000 square metres of space was withdrawn from the market over the period of the Postcode 3000 project. Without it, it is unlikely the total Melbourne CBD office vacancy rate would have fallen from 25.8 per cent in 1992 to 7.5 per cent in 2000.

The broader citywide impacts of the program are impressive. The program is credited with achieving an extraordinary 3,311 per cent increase in apartments in the CBD between 1992 and 2002, as well as 275 per cent more cafés and restaurants in just a decade. Pedestrian traffic more than doubled, reflecting the growth of bars and cafés and a safer, more welcoming environment.

The price of doing nothing is great – CBDs with empty streets, boring building façades and tired infrastructure. Upgrade programs have the potential to solve the problem of office market vacancies, and to deliver economic, social and environmental outcomes that will benefit the entire community.

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  1. David Chandler

    Catherine makes some solid points. Empty old office buildings have lots of flow on effects. One is the progressive conversion of these buildings to residential. On the face of it the city benefits with new dwellers, a 24/7 economy and street activation. But it was not long ago that the Property Council was pointing to the potential sterilisation of huge tracts of our cities that will never again be able to consolidated for new employment generating buildings. All forgotten as the current focus is on economic stimulation now. Another harmful impact of the current wave of new commercial development is the false impression created by head land rentals being assumed for new developments when the reality is that discounts of 20 to 30% are the norm.
    I equate this to a ponzi scheme. Ordinary investors will suffer as these properties correct their market value. One can sense the top of the market when some of smart players are already cashing out.
    Possibly more empty buildings up ahead as these under performers are found out. These buildings will not convert as easily as their older peers.
    Underpinning these risks are out of control construction costs.