CBD office markets emerge from lockdown strongly

The CBD office space market has rebounded strongly from lockdown, posting the highest net absorption rate in almost three years, new figures show.

Real estate services firm JLL said its third quarter national office market statistics showed a positive net absorption rate of 70,100sq m for CBD office space.

Net absorption is the sum of office space taken up, minus the amount that became vacant during a set period.

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

JLL Head of Research Australia, Andrew Ballantyne, said that despite lockdowns, “business confidence held up”, with many firms looking to increase staffing numbers over the past few months.

The Sydney CBD recorded 24,700sq m of net absorption over the quarter and the vacancy rate fell by 0.2 percentage points to 13 per cent.

Meanwhile, Melbourne’s CBD recorded positive net absorption of 24,100sq m, however, the vacancy rate increased to 15 per cent as a new development completed with limited pre-commitment and backfill space became available.

Source: JLL Research

JLL Head of Office Leasing Australia, Tim O’Connor, said many businesses are continuing to grow.

“A number of industry sectors are in expansion mode and contributing to the Sydney CBD demand recovery story,” he said.

“The common theme is organisations growing tech-related headcount to improve business processes or evolve their service offering for customers.”

Mr O’Connor noted even though the figures were positive for Melbourne, sentiment still needed to improve.

“Despite the positive net absorption results in Q3, leasing market sentiment remains challenging in the Melbourne CBD,” he said.

“However, the lifting of restrictions on leasing inspections has started to improve activity and we expect inquiry levels will increase over the latter part of 2021 and into 2022.”

Elsewhere, Canberra’s CBD office market continues to strengthen.

The nation’s capital recorded 11,100sq m of net absorption and the vacancy rated dropped to 6.5 per cent over the third quarter of 2021.

The prime grade vacancy rate fell to 3.6 per cent over the quarter and is below the 4 per cent mark for the first time since 2008.

Mr Ballantyne said Canberra’s market is just about as strong as it gets.

“Canberra has one of the lowest office market vacancy rates in the world,” he said.

“While public sector activity sets sentiment in Canberra, we are seeing strong leasing inquiry from private sector organisations in the 300 to 500sq m size cohort.”

Source: JLL Research

The Adelaide CBD recorded 7,900sq m of positive net absorption in the September quarter, with the headline vacancy rate compressing to 16.4 per cent.

However, most of the leasing activity was concentrated in better quality assets and prime grade vacancy tightened to 12.4 per cent in past quarter.

Mr Ballantyne said the Adelaide market was steady.

“The Adelaide CBD office market demand recovery has flown under the radar,” he said.

“However, multiple industry sectors are in expansion mode with strong leasing inquiry coming through from tech firms, cyber security related organisations and defence related technology businesses.”

Brisbane and Perth were the two slowest CBD markets in the past quarter, with the Brisbane CBD recording net absorption of 2500sq m, while the Perth CBD had a zero net absorption result and was the only monitored CBD office market not to record positive net absorption.

However, the withdrawal of office stock for refurbishment led to the Perth CBD vacancy rate declining to 19.1 per cent over the quarter.

Mr O’Connor said he expected the CBD markets to continue to rebound over the next 18 months.

“The demand-side of the office leasing market equation is complex,” he said.

“While some organisations may reduce their occupational footprint as they work in a more flexible manner, the most important factor for office sector demand is headcount growth.

“We are seeing strong hiring intentions across a diverse range of industry sectors including technology, professional services, financial services, healthcare and the public sector.

“Gross Domestic Product expectations for the Australian economy are being revised higher for 2022, supporting employment growth and the demand for office space over the next 18 months.”

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Rowan Crosby

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