Mixed conditions across Australia’s office markets

AUSTRALIA, 15 July 2022 – JLL Research has released 2Q22 statistics on national office markets. The figures showed positive net absorption of 143,600 sqm was recorded across CBD office markets over the 2021/22 financial year.

The national CBD office market vacancy rate was unchanged over the 2021/22 financial year at 14.0%.

JLL Head of Research – Australia, Andrew Ballantyne said, “Corporate Australia is attempting to navigate a path through a range of factors from geopolitical risks to rising cost pressures. In some specific cases, this is delaying occupier decision-making.”

“However, we believe that the risk of stagflation in Australia remains low. Headline inflation, similar to other mature economies, has jumped but the labour market remains resilient with the economy at full employment and job advertisement surveys hitting record highs,” said Mr Ballantyne.

JLL Head of Office Leasing – Australia, Tim O’Connor said, “Occupier movement is stimulated by a diverse range of factors. We are seeing headcount growth directly translate into additional office space requirements, while some organisations are taking a more flexible approach to space requirements and looking to reduce their core office space.”

The Sydney CBD office market recorded positive net absorption of 2,400 sqm over Q2 and 29,000 sqm over the 2021/22 financial year. Vacancy has moved sideways over the past 12 months and was sitting at 13.0% in 2Q22.

Mr O’Connor said, “While the headline vacancy rate remains above the long-term average, the Core precinct is very tight and we have seen a number of tenants miss out on their preferred options. The strength in occupier demand for higher quality assets is reflected in positive prime grade take-up at the expense of lower quality assets.”

Since the start of 2021, Sydney CBD prime grade net absorption was 98,900 sqm compared with -75,600 sqm for secondary grade assets.

The Melbourne CBD recorded 21,300 sqm of positive net absorption over the 2021/22 financial year and the headline vacancy rate is currently 15.0%.

Mr O’Connor said, “The broader Melbourne CBD is more active with an increase in pedestrian traffic and a sharp reduction in CBD residential vacancy rates. Office leasing activity is strongest in the sub 500 sqm cohort of the market and a number of larger organisations are becoming more active.”

The Brisbane CBD was the strongest CBD office market over the 2021/22 financial year recording positive net absorption of 40,800 sqm. However, the Brisbane CBD vacancy rate remains elevated at 15.4%.

Mr O’Connor said, “Leasing enquiry and activity has improved across Brisbane’s office markets. The uncertainty around construction costs and timeline for completing fit-out works has led to even more enquiry being orientated towards the fitted space market.”

The Perth CBD recorded positive net absorption of 12,000 sqm over the 2021/22 financial year. The completion of a refurbished office project pushed the headline vacancy rate up to 20.1% in 1Q22.

Mr Ballantyne said, “The headline vacancy in the Perth CBD is misleading with almost one-third of vacancy being classified as structural and unleasable in its current condition. Structural vacancy is concentrated in older, lower quality assets with significant capex requirements and limited tenant demand.”

Canberra recorded positive net absorption of 25,300 sqm over the 2021/22 financial year. Canberra remains the tightest CBD office market with vacancy sitting at 6.1% in 2Q22.

Mr Ballantyne said, “Leasing enquiry from the public sector will increase now the election result is confirmed and the ACT Government is becoming more active. Private sector activity is concentrated in the sub 500 sqm size range and these companies are typically seeking fitted space.”

The Adelaide CBD recorded 15,100 sqm of positive net absorption over the 2021/22 financial year. Over the past 12 months, occupier demand was stronger for prime grade assets with net absorption of 33,400 sqm, while secondary grade net absorption was -18,300 sqm. The Adelaide CBD vacancy rate was 15.4% in 2Q22.

Mr O’Connor said, “Organisations are gravitating towards higher quality assets as health & wellness, sustainability and building amenity are important factors for employees. The move towards higher quality assets will increase vacancy pressures on secondary grade assets and owners will have to inject capex into these assets to remain relevant in the leasing market.”

“In the development market, higher construction costs are exerting upward pressure on economic rents. In the current environment, pre-commitment tenants will gravitate towards those projects that have secured planning approval and the developer has a contractual agreement with a Tier 1 builder,” concluded Mr O’Connor.