Office markets resilient in uncertain economic environment

AUSTRALIA, 30 January 2023 – JLL Research has released 4Q22 statistics on national office markets. The figures showed positive net absorption of 32,100 sqm was across CBD office markets in Q4 2022 and 95,000 sqm over the 2022 calendar year.

The national CBD office market vacancy rate was unchanged over the December quarter at 14.2%.

JLL Head of Research – Australasia, Andrew Ballantyne said, “Corporate Australia is navigating a pathway through economic headwinds. However, recent surveys have shown that Australian companies have a more positive economic outlook than their global peers.

“Australia has a diverse economy and job vacancy surveys remain at very elevated levels. However, we do expect that some organisations will seek to reduce headcount in 2023 and review their office space requirements,” said Mr Ballantyne.

JLL Head of Office Leasing – Australia, Tim O’Connor said, “Leasing enquiry and activity remains at reasonably high levels across most office markets. Several companies took short-term extensions through the pandemic and are now looking to relocate. Some organisations, which require offshore approval, have become more protracted in their decision-making process.”

The Sydney CBD recorded positive net absorption of 12,400 sqm in 4Q22. The migration to higher quality assets remained a theme with prime grade net absorption of 23,800 sqm, while secondary grade assets had a contraction of -11,400 sqm.

Mr O’Connor said, “Leasing enquiry is gravitating towards assets that can satisfy occupier requirements around accessibility, amenity, sustainability and flexibility. The short-term economic uncertainty has not impacted enquiry; a number of tenants with expiry dates from 2026 and beyond are now actively assessing options.”

The Brisbane CBD recorded positive net absorption of 22,000 sqm over 4Q22 and a very robust 56,400 sqm over 2022. As a result, the Brisbane CBD vacancy rate tightened by 1.6 percentage points over 2022 to 13.9%.

Mr O’Connor said, “Leasing enquiry across the Brisbane office markets is very diverse across a range of industry sectors. We are also starting to see increased enquiry from the public sector (Federal and State) with a number of leasing decisions expected to be made over the first half of 2023.”

The Perth CBD recorded positive net absorption in 4Q22 (+4,400 sqm) and 32,600 sqm over 2022 – double the 30-year average. The positive leasing market conditions in the Perth CBD were replicated in West Perth where net absorption of 19,300 sqm was recorded over 2022.

Mr O’Connor said, “Perth has one of the highest office re-entry rates across Asia Pacific and this is one of the factors providing confidence for organisations to commit to new office leases.”

Canberra recorded a positive quarterly net absorption result in Q4 (+12,800 sqm) and 47,600 sqm over 2022. Canberra’s annualised net absorption result was the strongest figure since 2012. Canberra’s vacancy rate (7.0%) remains the tightest of the monitored CBD office markets.

Mr Ballantyne said, “Post the Federal Election, leasing enquiry and activity was concentrated in the sub 500 sqm cohort of the market. However, a number of larger requirements are starting to emerge and will generate strong leasing activity over the first half of 2023.”

The Melbourne CBD recorded -18,600 sqm of negative net absorption over the quarter. However, the Melbourne Fringe (+7,500 sqm) and Melbourne suburban (+16,800 sqm) office markets recorded strong net absorption results over 4Q22.

The Adelaide CBD recorded a flat net absorption result in 2022 (-500 sqm). However, the office divergence story was very evident in Adelaide with prime grade assets recording 18,500 sqm of net absorption, offset by a reduction in secondary grade assets (-19,000 sqm) in 2022.

Mr O’Connor said, “Organisations are exploring how to shape a sustainable, resilient and inclusive future of work. Real estate is now an important part of any attraction and retention strategy with organisations seeking to provide an environment which encourages collaboration, socialisation, while providing space to work on focus tasks.

“As we move into 2023, the discussion around carbon emission reduction targets will include a more diverse range of organisations. Real estate owners have to move ahead of current market requirements and show how their asset can evolve to become a net zero carbon building,” concluded Mr O’Connor.

Australian CBD Office Markets Net Absorption

Source: JLL Research