A Market Divided Reflects Differing Fortunes

By September 11, 2017 news No Comments
Divided Office

Dependent whether you are based on the south eastern shores of the Australian continent or anywhere west of the south eastern seaboard the office outlook goes from one extreme to the other. Despite the overall national office vacancy for CBD and non CBD vacancy rates, currently standing at 10.5% and 9.5% respectively, these figures have not changed much over the past four years. We have seen, however, great changes in fortune between the Sydney and Melbourne markets and the rest of the major capital cities.

The latest Property Council of Australia vacancy figures for the six months to July 2017 show office vacancy in Sydney CBD fell from 6.2 to 5.9 %, Melbourne remained at 6.5%, Brisbane increased 0.4% to 15.7%, Perth fell 1.6% to 21.1 % and Adelaide and Canberra both fell slightly to 16.1% and 11.4% respectively.

Ken Morrison, Chief Executive of the Property Council, is reported to have stated “While vacancy rates remain high in some centres, they are no longer facing significant new office supply coming on to the market. Almost three quarters of the new CBD office supply over the next two and a half years is coming in Sydney and Melbourne, the cities which are best placed to handle it.” Whilst a significant amount of the new stock in the pipeline is pre-committed it is also A plus grade quality space aimed at satisfying the needs of the major corporate and government organisations who can afford to pay associated the higher rents. Whilst back fill space will be released as groups move this will not necessarily solve the supply issue for the more budget driven medium to small sized businesses.

So, if you are a tenant in one of the main CBD districts apart from Sydney and Melbourne choice abounds and incentives remain very attractive. For Melbourne and Sydney tenants the story is much different. Due to the limited supply of contiguous space in Sydney companies have either stayed put or signed up to the generally more expensive option of pre-committing to space in new development. This situation is unlikely to change in the foreseeable future. It has been identified that in the next year there will only be 10 options of over 3000 sqm providing contiguous floors in the Melbourne CBD. Prime gross effective rents have been forecast to increase by an average of 9.8% and 7.1% in Sydney and Melbourne respectively over the next couple of years. Face rents are increasing and leasing incentives are beginning to fall albeit the picture for incentives remains volatile and will very much depend upon a variety of factors.

The fall in vacancy will in the short term result in a much reduced number of options for companies to consider when relocating. Smaller quality fitted out tenancies are proving more and more difficult to find however there still remains a good selection of unfitted options in the 300-1500 sqm range.

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