Once again the overall vacancy rate for Australia remains pretty flat trending slowly downwards having fallen over the six months to January 2017 from 11.0% to 10.9%. However when examining the Property Council of Australia’s January 2017 Office market report the statistics for the last six months for the various capital cities illustrate the respective fortunes of these centres.
Melbourne and Sydney office markets continue to demonstrate strong office market performance with total vacancy standing at 6.4% and 6.2% respectively. The Melbourne CBD saw a record take up of space of some 188,700 sqm in 2016. The Brisbane office market is gradually improving over the last two years and has shown eight quarters of positive net absorption. Resource and engineering dependent Perth has seen some stabilisation of their office market with the improvements in iron ore prices.
The PCA report states demand for office space grew over three and half time the historical average in Melbourne and over five times the historical average in Brisbane. The fall of vacancy in Melbourne, according to Savills, comes on the back of improvements in the Victorian economy and a surge in business confidence that has seen tenants expand their space requirements. Savills Victorian Office Leasing Director Mark Rasmussen was reported to comment “There have been several factors at work including a pretty positive economy and the fact the four pillars of the office market – Telstra, State and Federal governments, NAB and ANZ – who make up 20% of the market – expanded at the same time for the first time in several years”.
More concerning however is the report states office markets are about to be hit with a “super-cycle of low supply”. In Melbourne the CBD office market accounted for the bulk of withdrawals prior to 2016, over the next three years, St Kilda Road office space is forecast to lead all other.
Goodwin Property Advisory has previously highlighted the particular plight of small to medium sized businesses who are likely to experience particular difficulty in the future in securing economically viable offices. Such businesses traditionally tend to occupy “B” grade offices and these are the buildings now that are being withdrawn from the market for redevelopment into residential towers, and retirement centres. The too few new buildings that will be developed in the future will mainly be “A” grade and above grade of buildings with rental beyond the budgets of many organisations. Unless some measures are taken in the form of planning legislation to protect and promote affordable traditional office stock then the impact on the economy as a whole will be dire.