Economic Factors To Drive Demand In Australia’s Office Markets

Improving economic conditions and rising business revenue for office-occupying industry groups is expected to underpin improved demand in Australia’s major CBD office markets from late 2014, according to new forecasts from

CBRE.

CBRE’s Head of Research for Australia Stephen McNabb commented on the latest Property Council of Australia office vacancy statistics and said the results were moving in line with expectations for 2014.

Sydney and Melbourne were the more balanced of the markets whereas Perth and Brisbane were seeing the most vacancy pressure and the highest vacancy rates emerge.

Mr McNabb said vacancy in Sydney had tightened slightly over the first half of the year to 8.4 per cent, which was supported by buoyant net absorbtion and net withdrawals over the six-month timeframe.

It was a similar story for Melbourne, with positive supply additions in the first half of 2014 leaving the vacancy rate at 8.5 per cent, leading the next supply cycle, forecasted to add a further of 228,000 square metres of floor space to the CBD over the next three years.

“While subdued demand for office property during the first half of 2014 continued to keep upward pressure on office vacancy rates, improving economic factors will support a more positive demand outlook in 2014 and 2015,” Mr McNabb said.

“At a national level, we expect CBD office demand to shift into positive territory over the second half of 2014, gaining momentum in 2015.”

Mr McNabb said results across Australia’s major office markets were mixed.

“Most of the improvement in demand is expected to come through the Sydney and Melbourne markets initially, with economic momentum shifting to the south-east,” Mr McNabb explained.

Vacancy rates in Brisbane have lifted to 14.7 per cent in the first six months of this year and Perth rising to 11.8 per cent.

The same trend happened in Adelaide, rising to 13.8 per cent, Gold Coast, reaching 15 per cent and Canberra with a historic high of 13.6 per cent.

“The flow on impact to market rents has been limited due to the extent of growing supply levels across all markets, although prime markets in Sydney and Melbourne are expected to experience the lowest vacancy peak – 2-3 per cent points above current levels,” Mr McNabb said.

CBRE Regional Director Office Services Andrew Tracey said demand conditions were improving as businesses looked to start growing again after a prolonged cycle of cost cutting.

“Our recent data in Sydney and Melbourne tells us that 50 per cent of the companies we are dealing with are in expansion phase and looking to grow. These companies are at the front end of the curve and are going to be the real beneficiaries of the amount of space available in the market. They will get to lock costs in and benefit from better margins than their competitors in the years to come,” Mr Tracey said.

“These are ‘once in a cycle’ deals and provide a real value proposition to smart companies, but smart companies are also selective, they understand that to attract talent they need better quality accommodation and the flight to quality in the market is apparent.

“We continue to monitor business confidence closely and the indicators we care about point to a more positive demand environment for the next 18 months, and as such, we expect to see increased activity in the market.”