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Warning Resurgent Office Markets Facing Critical Time

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Australia’s resurgent office market has banked its strongest quarterly result since 2018, according to JLL’s quarterly report, but industry experts warn the next few months will be critical.

More than 70,000sq m of net absorption was recorded for the third quarter of 2021, and five of the six CBD office markets recorded positive net absorption.

While the national CBD office market vacancy rate remained at 4 per cent, JLL head of research Andrew Ballantyne said the sector was shrugging off the lockdown blues.

“Business confidence held up during the most recent lockdowns, while labour market surveys showed the majority of organisations were seeking to increase headcount,” he said.

“The silver lining of the latest lockdown in New South Wales, Victoria and the ACT is an acceleration of the vaccination rollout across Australia.

“We will have one of the highest vaccination [rates] in the world at the end of 2021 and organisations are more confident in making long-term office leasing decisions.”

JLL head of office leasing Tim O’Connor said organisations were expanding their footprint as the tide was turning.

“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.

“There is a view that all organisations are taking less office space upon relocation … actual leasing evidence shows that most organisations are growing headcount and this is translating into a larger occupational footprint.”

September office occupancy (%)

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^Source: Property Council of Australia

Sydney’s CBD recorded a 27,400sq m net absorption over the quarter, and vacancy has fallen 0.2 percentage points to 13 per cent.

Parramatta recorded the largest net absorption rate at 45,800sq m, while north and south Sydney recorded in excess of 20,000 square metres.

The Melbourne CBD recorded positive net absorption of 24,100 sqm during the third quarter, however, the vacancy rate increased to 15 per cent as a new development completed with limited pre-commitment and backfill space became available.

O’Connor said the lifting of restrictions on pre-leasing inspections would strengthen the sector in Melbourne during the coming months.

Canberra has one of the lowest office vacancy rates in the country at 6.5 per cent, while prime grade vacancy rate is at 3.6 per cent, the first time it has dipped below 4 per cent since 2008.

Brisbane recorded a 2500sq m net absorption rate during the quarter to deliver a small contraction in vacancy rates to 15.8 per cent.

Perth’s CBD office market was the only one not to record a positive net absorption rate for the quarter.

Property Council chief executive Ken Morrison said October and November would be crucial to the recovery of Australia’s largest CBDs as they reopened following protracted lockdowns.

“With New South Wales, Victoria and the ACT all committed to a path out of lockdown, CBD office owners and managers are working to prepare their assets for the return of vaccinated workers,” Morrison said.

“This isn’t just about the coffee shops, dry cleaners and restaurants … the activity in our CBDs support millions of jobs and generate hundreds of billions of dollars [in] broader economic activity.”

Property Council’s Victorian executive director Danni Hunter said vaccination and testing sites at major offices would play a key role in bringing people back to Melbourne’s office sector, with occupancy currently at 6 per cent.

Hunter has also called for the reinstatement of the mandate requiring public sector workers to attend the office three days a week.

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Article originally posted at: https://www.theurbandeveloper.com/articles/crucial-time-for-resurgent-office-market-pca