New supply constraints due to Covid-19 and flexible working spaces will help rebalance hard hit CBD office markets by 2023, according to commercial real estate agencies CBRE and Colliers.
The latest Colliers International office market report says record low pre-Covid vacancy rates in Melbourne and Sydney prompted a supply cycle in both cities, resulting in a number of projects completing this year and into 2021.
As the pandemic hit this negatively impacted office occupancy, however it should level out as new developments get delayed.
Simon Hunt, managing director of office leasing at Colliers International said it was anticipated that new projects would need higher pre-commitment hurdles to get built.
“We expect that current and future vacancy created by this demand impact to be mopped up by improving employment numbers from 2022 onwards,” Hunt said.
“Conversely, new supply should become more constrained in 2022-23 as projects need to effectively be getting their pre-commitments now to meet this timeframe.
“Office markets are cyclical for this reason–demand responds quickly to economic shocks, but supply takes many years.”
CBD office predictions
|City||Vacancy rate current||Vacancy rate to July 2021||Net supply current (sq m)||Net supply to July 2021|
^ Source: Colliers International CBD Office Research Forecast Report
The strength of employment growth in Australia, particularly in Sydney and Melbourne, created good office demand conditions across the country between 2016 and 2019.
During this time, white collar employment grew by 82,000 employees, representing circa 900,000sq m of office demand, however only 645,000sq m was absorbed.
This shows occupiers were already taking less space per new employee for some time, and the flexible working trend that is now front and centre was already well advanced, according to the report.
This sentiment was shared by CBRE's “Future is Flex” report which also predicts the office market will settle in 2023.
Colliers director of research Anneke Thompson said while border closures were affecting the market in the near term, things would eventually normalise.
“It has never been more challenging to understand what employment and therefore demand conditions will be this year or next,” Thompson said.
“What we do know, however, is that any short-term impact to demand is always met by a long-term effect on supply cycles.”