Demand for CBD office space defies pandemic predictions

Demand for CBD office space is continuing to defy expert predictions of a pandemic-induced office market collapse, according to the Property Council of Australia.

The latest Office Market Report shows tenant demand for office space has lifted in in every capital city CBD, proving the market to be more robust than initially thought.

According to the report, tenant demand increased one per cent, on average, across the country’s CBDs, and 0.7 per cent in non-CBD markets.

Every capital city except Sydney and Brisbane recorded demand increases above their historical average.

Property Council of Australia Chief Executive Ken Morrison said the figures indicate that the dire predictions of experts haven’t played out.

“These are a striking set of figures which illustrate that the office is alive and well in today’s economy, even as the pandemic changes how we use workspaces,” Mr Morrison said.

“While many expected this once in 100 year global pandemic to cause a major spike in office vacancy, these figures show that hasn’t eventuated. 

“While aggregate vacancy levels has risen slightly from 11.9 per cent to 12.1 per cent, the driver of this has been new supply of office space, not a drop in demand.”

Source: Property Council of Australia

Mr Morrsion said that during the recession in the 1990s, vacancy rates surged 15.6 per cent, whereas during the pandemic they only increased 3.3 per cent.

“The supply of office space across Australia has been above the historical average in three out of the last four reporting periods, which means since the onset of the pandemic, office developments have continued to come online, and demand for it has largely kept up,” he said.

“The data matches what we’re hearing, and that is that tenants clearly see collaborative and well designed office space as a key component of their ‘new normal’ of working.

“Although these results illustrate the resilience of the office market, there remains a critical need for governments and businesses alike to reinvigorate our CBDs as soon as the health situation allows, and the Property Council of Australia remains committed to leading and contributing to those efforts.”

Source: Property Council of Australia

The latest data on vacancy rates comes as businesses have already begun returning to the CBDs. According to real estate services firm JLL, their third quarter national office market statistics showed a positive net absorption rate of 70,100sq m for CBD office space.

The 2021 September quarter results were the strongest since the December quarter of 2018, with five of the six CBD markets analysed recording positive net absorption.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.