Office vacancy figures show mixed outlook for cities

Businesses and workers continue to slowly trickle back into city CBDs, with new data showing demand for office space increased an average 0.1 per cent in the past six months.

The Property Council’s Office Market Report found vacancy rates declined in half of Australia’s CBDs, while also recording a reduction in national sublease vacancy, which indicates more companies are fully using their existing space.

While the overall Australia-wide vacancy rate increased slightly from 12 to 12.5 per cent, it comes on the back of solid office construction activity, with the supply of office space exceeding the historical average.

Property Council of Australia Chief Executive Mike Zorbas said the latest data was encouraging and showed large levels of supply, rather than demand, was influencing vacancy results.

“This is the third six-month period of positive demand nationally for office space in our CBDs,” Mr Zorbas said.

“Organisations see that an office presence in our cities is an essential part of doing business.

“While new supply has increased total vacant space in some areas, these latest numbers are a vote of confidence in our CBDs.”

Overall non-CBD office vacancy rates dropped from 15.2 to 15.1 per cent, with tenant demand lifting 0.3 per cent.

Vacancy rates in Brisbane fell from 13.9 to 12.9 per cent, Perth dropped from 15.8 to 15.6 per cent and Hobart recorded a drop from 2.7 to 2.5 per cent.

In other capitals, vacancy rates rose from 8.6 to 8.9 per cent in Canberra, 10.1 to 11.3 per cent in Sydney and 12.9 to 13.8 per cent in Melbourne.

Adelaide’s vacancy lifted from 14.2 to 16.1 per cent, driven by above-average supply additions.

In those markets where vacancy increased, there were moves toward prime stock over secondary stock, the report said.

Mr Zorbas said Brisbane’s office market had proven to be a strong performer over the past six months.

“Tenant demand outstripped supply in Brisbane, pushing the vacancy rate down from 13.9 to 12.9 per cent,” he said.

“Looking forward, there is less than 100,000sq m of office space coming online in Brisbane over the next three years, of which 72 per cent has already been pre-committed.”

Increasing supply to affect office vacancy figures

The future supply of office space in CBD markets is forecast to be higher than the historical average through 2023 before retreating under the average for the next two years.

Supply in non-CBD markets is set to be higher than the historical average in the first half of this year before declining in the following years.

Sublease vacancy declined in both the CBD and non-CBD markets, with all CBD markets below the historical average, except Sydney and Melbourne.

Despite this, Melbourne witnessed a 0.7 per cent decrease in sublease space.

Darwin and Hobart have no sublease space available.

Returning workers

After a long period of people working from home, workers are finally starting to make their way back to the office on a more regular basis.

According to the latest Property Council Office Occupancy survey, occupancy has continued to rise across most capital cities.

The November survey recorded Perth offices at 80 per cent occupancy compared to pre-pandemic levels, Adelaide at 74 per cent, Brisbane at 67 per cent, Sydney at 59 per cent, Melbourne at 57 per cent and Canberra at 52 per cent.

Mr Zorbas said while the office market had a modest increase in the level of demand, more attention on our CBDs was required.

“Growing skilled migration and the return of overseas students is most welcome. The leadership role of governments and the active engagement of their teams in CBD life should remain front of mind for decision-makers in 2023,” he said.

“The Property Council will continue to work with governments to unlock the full potential of our capital cities.”

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Rowan Crosby

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

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