A strong start to 2024 for Australia’s office leasing market

AUSTRALIA, 17 April 2024 – JLL Research has released 1Q24 statistics on national office markets. The figures showed that positive net absorption of 33,300 sqm was recorded over the first quarter.

The national CBD office market vacancy rate was unchanged at 14.7% over the quarter.

JLL Head of Research – Australasia, Andrew Ballantyne said, “Organisations have been observing changes in workplace patterns and have more confidence in what their occupational footprint will look like moving forward. We see more conviction in decision-making and the positive net absorption result highlights the net balance of organisations are seeking more office space.”

“Virtually all organisations that relocate move into higher quality office accommodation. This is leading to a trifurcation in office markets. The highest quality buildings have strong occupancy rates, A Grade and upper B Grade are competing on the level of amenity / sustainability credentials and an increasing number of lower quality assets is where we see structural vacancy.”

Occupiers preference for higher quality office accommodation is reflected in a detailed breakdown of net absorption statistics. Across Australia’s CBD office markets, we recorded 190,300 sqm of prime net absorption and -233,700 sqm of secondary net absorption over the 12 months to March 2024.

The Sydney CBD recorded the strongest net absorption result in 1Q24 (+13,500 sqm). The Sydney net absorption result was a quality story – prime grade assets recorded +61,500 sqm of net absorption, compared with a contraction for secondary grade assets (-48,100 sqm).

JLL Head of Office Leasing – Australasia, Tim O’Connor said, “The Sydney CBD net absorption result was supported by a reduction in overall sublease availability. Several organisations have seen their return-to-office rate improve the first part of 2024, and concluded they require space previously offered to the sublease market.”

The Melbourne CBD recorded positive net absorption of 8,100 sqm over the quarter. The Melbourne result was also supported by a reduction in sublease availability over 1Q24.

Mr O’Connor said, “Melbourne CBD pedestrian counts were increasing over the second half of 2023 and this has continued into 2024. While Melbourne still lags other Australian cities, we see improved utilisation rates and improved office leasing enquiry.”

The Adelaide CBD followed a very strong 2023 (+46,000 sqm), with an above trend net absorption result in 1Q24 (+11,000 sqm). Similar to other office markets, enquiry for prime grade assets is significantly stronger. Adelaide CBD prime net absorption was 73,700 sqm, compared with -22,500 sqm for secondary grade assets over the past 12 months.

Mr Ballantyne said, “Adelaide is exposed to growth sectors of the domestic economy. This exposure is reflected in leasing enquiry and activity, with defence-related organisations active in Q1.”

The Brisbane CBD recorded an eighth successive quarter of positive net absorption in 1Q24 (+1,100 sqm). Brisbane’s headline vacancy tightened to 11.0% in 1Q24. The prime grade vacancy rate moved even tighter to 9.2% – the lowest level since 4Q19.

Mr O’Connor said, “The limited number of prime grade options is being reflected in strong market rental growth. Over the past 12 months, Brisbane CBD prime gross effective rents have increased by 12.4%.”

The Brisbane Near City is following a similar trend to the CBD. JLL recorded positive net absorption of 70,000 sqm and prime gross effective rental growth of 6.4% over the 12 months to March 2024.

Canberra recorded a modest positive net absorption figure of 900 sqm in 1Q24. Prime net absorption was 4,300 sqm, while secondary net absorption was -3,300 sqm over the quarter.

The Perth CBD was the only office market to record negative net absorption in 1Q24 (-1,300 sqm). However, the negative result was solely attributable to secondary grade assets as prime net absorption was 2,600 sqm in 1Q24.

Mr O’Connor said, “Leasing enquiry and activity is positive across most office markets and the strong prime grade net absorption result highlights that organisations understand the important role office space plays in the attraction and retention of knowledge workers.”

“However, occupiers seeking high quality space are seeing fewer viable options. Furthermore, project completions across the whole Australian office market over the 2025 to 2026 period are approximately 50% of the long-term average. Competition for space is not a phrase we have used since late 2019, but it is starting to become relevant again”, concluded Mr O’Connor.