Office Confidence Returns as Absorption Rate Turns Positive

The office market may have turned the corner with confidence returning and signs of competition for space emerging.

According to data from JLL Research, the first quarter of this year recorded positive net absorption of 33,300sq m while the national CBD office market vacancy rate was unchanged at 14.7 per cent.

This compares to a negative net absorption of -58,700sq m for the fourth quarter of last year.

JLL head of research—Australasia Andrew Ballantyne said organisations had been watching changes in workplace patterns and had more confidence in what their occupational footprint would look like in the year ahead.

“We see more conviction in decision-making and the positive net absorption result highlights the net balance of organisations are seeking more office space,” Ballantyne said.

“Virtually all organisations that relocate move into higher-quality office accommodation.”

Ballantyne said this was leading to a trifurcation in office markets—the highest quality buildings had strong occupancy rates, A Grade and upper B Grade are competing on the level of amenity and sustainability credentials while an increasing number of lower quality assets “is where we see structural vacancy”.

Occupiers’ preference for higher quality office accommodation was reflected in a detailed breakdown of net absorption statistics, he said.

“Across Australia’s CBD office markets, we recorded 190,300sq m of prime net absorption and -233,700sq m of secondary net absorption for the 12 months to March 2024,” Ballantyne said.

The Sydney CBD recorded the strongest net absorption result for the quarter, 13,500 square metres.

The Sydney net absorption result was a quality story the data showed—prime grade assets recorded 61,500sq m of net absorption, compared with a contraction for secondary grade assets, -48,100 square metres.

▲ Subleasing reduced in Sydney during the quarter.

JLL head of office leasing—Australasia Tim O’Connor said the Sydney CBD net absorption result had been supported by a reduction in overall sublease availability.

“Several organisations have seen their return-to-office rate improve during the first part of 2024, and concluded they require space previously offered to the sublease market,” O’Conner said.

The Melbourne CBD recorded positive net absorption of 8100sq m over the quarter, which was supported by a reduction in sublease availability.

O’Connor said Melbourne CBD pedestrian counts were increasing during the second half of 2023, which had continued into 2024.

“While Melbourne still lags other Australian cities, we see improved utilisation rates and improved office leasing enquiry.”

The Adelaide CBD followed a strong 2023 (+46,000sq m), with an above-trend net absorption result for the quarter of 11,000 square metres.

Similar to other office markets, enquiry for prime grade assets was significantly stronger. Adelaide CBD prime net absorption was 73,700sq m, compared with -22,500sq m for secondary grade assets for the past 12 months.

“Adelaide is exposed to growth sectors of the domestic economy. This exposure is reflected in leasing enquiry and activity, with defence-related organisations active in the first quarter,” Ballantyne said.

Net absorption by grade, Q4 2023-Q1 2024

▲ Source: JLL

The Brisbane CBD recorded an eighth successive quarter of positive net absorption of 1100 square metres.

Brisbane’s headline vacancy tightened to 11 per cent while the prime grade vacancy rate moved even tighter to 9.2 per cent—the lowest level since the final quarter of 2019.

 “The limited number of prime grade options is being reflected in strong market rental growth. Over the past 12 months, Brisbane CBD prime gross effective rents have increased by 12.4 per cent,” O’Connor said.

The Perth CBD was the only office market to record negative net absorption, -1300 square metres.

However, the negative result was solely attributable to secondary grade assets as prime net absorption was 2600sq m for the quarter, according to JLL.

O’Connor said leasing enquiry and activity was positive across most office markets and the strong prime grade net absorption result highlighted that organisations understood “the important role office space plays in the attraction and retention of knowledge workers”.

“However, occupiers seeking high-quality space are seeing fewer viable options,” O’Connor said.

“Furthermore, project completions across the whole Australian office market for the 2025 to 2026 period are approximately 50 per cent of the long-term average.

“Competition for space is not a phrase we have used since late 2019 but it is starting to become relevant again.”