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Demand for CBD office space slowly returns

Demand for office space remains solid as tenants slowly return to CBDs across the country. 

According to the Property Council of Australia’s latest Office Market Report, tenant demand was 0.5 per cent higher on average across the country’s CBDs.

Property Council Chief Executive Ken Morrison said the figures were heartening given the damage done from ongoing lockdowns.

“In a healthy sign for our CBDs, the office market continues to defy previous dire predictions, with demand still in positive territory after nearly three years of the pandemic,” Mr Morrison said. 

“Demand for office space was strongest in Brisbane at more than three times the historic average, with Sydney, Perth and Adelaide also above average, while demand grew 0.1 per cent in Melbourne and dropped in Canberra 0.1 per cent. 

“While the Australian office vacancy increased 0.8 per cent to 12.9 per cent over the six months to July 2022, it’s new office space that is driving this outcome, not businesses wanting less office space.”

While demand is now returning, there are still above-average levels of supply according to Mr Morrison. 

“All capital city CBD markets experienced new supply increases, a combined 1.2 per cent, but supply is forecast to taper off in coming years,” he said.

Mr Morrison said while many predicted a crash in demand for office space and high vacancies, this has not occurred. 

“This has been underpinned by strong employment and the recognition that an office in city is fundamental to the success of many businesses,” he said. 

According to the July Office Market Report, the overall CBD vacancy increased from 11.3 to 12 per cent, while non-CBD areas saw a rise from 13.9 to 15.2 per cent.

Brisbane and Adelaide both recorded vacancy decreases, from 15.4 to 14 per cent and 14.5 to 14.2 per cent respectively, the only two CBDs in which supply didn’t outstrip demand.

The vacancy rate rose in the other capital cities, from 6.3 per cent to 8.6 per cent in Canberra, 9.3 per cent to 10.1 per cent in Sydney, 11.9 per cent to 12.9 per cent in Melbourne and 15 per cent to 15.8 per cent in Perth. 

Sublease vacancy increased slightly in both the Australian CBD and non-CBD markets, with Melbourne responsible for more than half of all CBD sublease vacancy.

Future supply in the CBD markets is expected to be below the historical average until July 2025, while in the non-CBD markets supply is expected to be above the historical average until July 2023, before reducing in the following years according to the report.

“While the office market has proven to be resilient and demand is in positive territory, our CBDs still need attention,” Mr Morrison said. 

“While demand for space is increasing, the number of actual office workers in our city centres is well below pre-pandemic levels and threatens the ecosystem of cafes, restaurants and retailers that help make our CBDs such special places. 

“The recovery in our CBDs needs to be top of mind for governments and businesses even as we deal with elevated levels of COVID-19 in the community.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.