Softening economy leads to flatter demand for office space
08 August 2019
Australian
office vacancies have
decreased over the first half of 2019, but tenant demand has only had a
modest impact on this result reflecting the softer economic conditions
over the period.
The Property Council Office Market Report for July 2019 shows that
office market vacancy rates around the country decreased to 8.3 per cent
for July 2019 (down from 8.5 per cent in January 2019).
“Office markets provide a unique window into business activity and
sentiment, and it’s one that shows only minimal pick-up in demand for
office space around the country,” said Ken Morrison, Chief Executive of
the Property Council.
“The July 2019 results show that while office vacancy has tightened
slightly overall, this has been mostly driven by withdrawal of stock
from the market rather than tenant demand.
“In fact, net tenant demand for CBD office space grew by just 0.1 per
cent over the six months, its lowest growth in over four years, a clear
indicator of a softening economy.
“Looking behind the headline vacancy rate provides a deeper
understanding of what is happening in office markets and the economy
more generally,” Mr Morrison cautioned.
Net tenant demand grew by only 0.1 per cent for CBDs and 0.4 per cent
for non-CBDs in the six months to July 2019, compared with 0.7 per cent
and 0.2 per cent in the previous period. This was the lowest rate of
change in positive net tenant demand since January 2015. Withdrawals
accounted for 1 per cent of the vacancy rate change across the
Australian CBD markets.
Melbourne and
Sydney remain Australia’s strongest and best performing CBD markets
with very tight vacancies.
Melbourne’s CBD vacancy rate was 3.3 per cent, up slightly from 3.2 per
cent in January. New supply and withdrawals accounted for the biggest
changes in Melbourne’s vacancy rate, with positive net tenant demand
accounting for just 0.2 per cent.
Sydney’s CBD vacancy rate was 3.7 per cent, down from 4.1 per cent in
January and its lowest vacancy since January 2008. Sydney’s result was
influenced by a 0.7 per cent shift due to withdrawals with 0.1 per cent
movement from negative net tenant demand.
Brisbane’s CBD vacancy rate fell for the third consecutive period to
11.9 per cent compared to 12.9 per cent in January. Positive net tenant
demand accounted for 0.4 per cent of the shift, along with 0.6 per cent
from withdrawals. There was no new supply in the period.
The
Perth vacancy rate tightened slightly to 18.4 per cent in July,
while
Canberra’s vacancy rate was unchanged at 11 per cent.
Adelaide’s
vacancy fell to 12.8 per cent, down from 14.2 per cent, supported by the
strongest growth of positive net tenant demand of any Australian CBD of
1.1 per cent.
Demand in non-CBD markets was slightly higher than for CBD markets at
0.4 per cent, with a slight increase in the vacancy rate to 9.3 per cent
in July 2019, up from 9.2 per cent in January 2019. By vacancy, the
tightest three non-CBD markets were East Melbourne (2 per cent),
Parramatta (2.7 per cent) and Macquarie Park (4.9 per cent).
Non-CBD office supply increased the vacancy rate by 1 per cent during
the period, while withdrawals made up 0.5 per cent of the reduction, and
positive net tenant demand accounted for the remaining 0.4 per cent
fall. Net absorption in non-CBD markets was about half the historical
average, while additions and withdrawals were in line with historical
averages.
A total of 334,494sqm of stock is due to be added to the office market
during the second half of 2019, with 245,333sqm being added in CBD
markets, which is slightly above the 6-month historic average of
238,140sqm. Across the CBD markets, an additional 603,566sqm is due to
be added in 2020, with a further 667,359sqm due to come online from 2021
onwards.
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Source: Property Council - www.propertycouncil.com.au
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