Occupiers are gravitating towards higher quality assets

AUSTRALIA, 12 October 2022 – JLL Research has released 3Q22 statistics on national office markets. The figures showed positive net absorption of 52,400 sqm was recorded across CBD office markets over 3Q22.

The national CBD office market vacancy rate was unchanged over the September quarter at 14.1%.

JLL Head of Research – Australasia, Andrew Ballantyne said, “Corporate Australia is taking a disciplined approach to office space requirements as the global economic backdrop deteriorates.”

“However, Australia’s economic outlook is favourable compared with other mature economies and the recent announcement that Australia will increase its permanent immigration intake is positive for population growth and creates a multiplier effect across the economy,” said Mr Ballantyne.

JLL Head of Office Leasing – Australia, Tim O’Connor said, “New business formation has been strong over the past few years and the expansion of SMEs is contributing to positive net absorption across most Australian office markets.”

The Melbourne CBD recorded 20,200 sqm of positive net absorption over the quarter, while vacancy tightened by 0.4 percentage points to 14.6% in 3Q22.

Mr O’Connor said, “The Melbourne CBD is starting to see an improvement in enquiry and leasing activity levels. While several larger briefs will come to market in the latter part of 2022, tenant enquiry is strongest in the sub 500 sqm cohort of the market.”

The office leasing market across the Melbourne Fringe is one of the strongest in Australia with net absorption of 30,700 sqm recorded in Q3 and 103,000 sqm over the 12 months to September 2022.

Mr O’Connor said, “Technology is a growth sector of Melbourne’s office markets. Equity market volatility has reduced enquiry from multi-national technology firms, but we continue to see leasing activity from domestic technology firms, which have been a large part of the Melbourne Fringe growth story.”

The Sydney CBD was the only monitored CBD office market to record negative net absorption in 3Q22. However, over the 12 months to September 2022, prime grade net absorption was 22,200 sqm, compared with -51,000 sqm for secondary grade assets.

Mr O’Connor said, “Organisations are seeking to upgrade their office premises and create an environment which encourages collaboration and supports wellness initiatives. We are starting to see competition for better quality assets and prime net face rents in the Sydney CBD increased by 5.3% over the past 12 months.”

The Brisbane CBD recorded positive net absorption of 7,900 sqm over 3Q22 and an above trend 46,100 sqm over the 12 months to September 2022. The Brisbane CBD vacancy rate tightened by 0.6 percentage points to 14.9%.

Mr O’Connor said, “Similar to other office markets, SMEs are more active, and enquiry is gravitating towards assets with an existing fit-out. However, several large leasing transactions were completed over the quarter highlighting that some organisations are willing to make longer-term real estate decisions.”

Canberra recorded the strongest quarterly net absorption result in Q3 (+36,200 sqm). The uplift in the headline vacancy rate to 7.3% can be explained by the completion of two speculative new developments.

Mr Ballantyne said, “All eyes are on the upcoming Federal Budget in late October. The Budget will provide insight into agency staffing levels and be a catalyst for new enquiry from the Commonwealth of Australia.”

The Perth CBD recorded a fourth successive quarter of positive net absorption in 3Q22 (+16,200 sqm). The headline vacancy rate compressed to 19.3% in Q3, and vacancy is becoming very tight for Premium Grade assets (7.2%).

The Adelaide CBD recorded 5,100 sqm of positive net absorption over the quarter and 12,300 sqm over the 12 months to September 2022. The Adelaide CBD vacancy rate was 16.1% in 3Q22.

Mr O’Connor said, “Organisations are increasingly aware that building amenity and the quality of office space is an important part of their employee attraction and retention strategies. We believe that structural vacancy is emerging across Australia’s office markets and these assets have lost relevance for active tenants.”

“Most listed companies and public sector bodies have carbon emission reduction targets, and this is shaping their real estate strategies. Real estate owners have to show how their asset is on the pathway to become a net zero carbon building or risk structurally lower occupancy rates,” concluded Mr O’Connor.

Source: JLL Research