Locations with strong population growth have also started to see improvement in office demand.
According to Ray White Commercial, fringe locations in Brisbane, Perth and the Gold Coast are likely to benefit most from strong net absorption relative to their market size.
Ray White Commercial Head of Research Vanessa Rader said office demand was increasing in the smaller capital cities outside the CBD.
“We can see locations such as West Perth, Brisbane CBD, Brisbane fringe, as well as the Gold Coast all have benefitted from strong net absorption relative to their market size, with Parramatta being the only Sydney market rounding out the top five,” Ms Rader said.
“Interstate migration has favoured Queensland and Western Australia (as well as South Australia) in recent times, which has flowed into the employment market and demand for commercial accommodation.”
Ms Rader said Brisbane CBD had enjoyed the greatest volume of net absorption across the country, combined with vacancies falling to 14 per cent after reaching 15.4 per cent in January 2022.
“Non-CBD markets remain in favour in these states with Brisbane fringe enjoying 22,461sq m of take-up, followed by the small Gold Coast market, which attracted 6,901sq m of demand,” she said.
“Perth and Adelaide have had similar fortunes, West Perth an outstanding performer recording 11,449sq m of take-up to reduce vacancy to 15.3 per cent after reaching 22.1 per cent just 18 months ago.
“The Perth CBD has endured high supply yet has attracted 13,302sq m of demand. While vacancy remains elevated at 15.8 per cent, results remain encouraging for this market during a time where the development pipeline is heavy.
“Adelaide, albeit a smaller market, has also benefited from 6174sq m of absorption to reduce vacancies to 14.2 per cent, a three year low.”
Despite conditions improving in the smaller states, Sydney and Melbourne have not fared as well, according to Ms Rader.
“With over 100,000sq m of new stock entering the Sydney CBD market and only 21,692sq m of absorption for the six months to July 2022, vacancies have grown to 10.1 per cent,” she said.
“With gains in sublease space, these are expected to continue to increase as tenants continue to evolve their hybrid office models.
“Melbourne CBD has not fared as well, adding a further 60,000sq m to stock levels, less than 2000sq m of take-up has seen vacancies rise to 12.9 per cent, with this market featuring the highest sublease vacancy in Australia at 2.6 per cent, which is also tipped to increase.”
Ms Rader said the move towards the fringe areas was one to be aware of going forward.
“While CBD markets such as Brisbane, Perth and Adelaide together with fringe markets of Brisbane and West Perth all feature relatively high vacancy rates, their improvements have been encouraging compared to more traditional east coast office markets,” she said.
“This trend is one to continue to watch over the next couple of years.”