Resources fuel burst in office demand

The Property Council’s latest Office Market Report shows Australia’s office vacancy rate declined marginally despite a surge in supply during the past six months.

The report also shows that new supply will peak in the next six months and then fall away rapidly until 2015, after which another construction spike is due.

The nation’s office vacancy rate is now 7.8 percent (down from 7.9 percent in January 2012) and is at its lowest level since 2009.

“Australia’s multi-speed economy is driving office market fundamentals and shaping business confidence,” says Property Council Chief Executive, Peter Verwer.

“While demand for office space is a buoyant 50 percent above the 20-year historical average, three quarters of net CBD absorption occurred in just Perth and Brisbane.”

“The hard economics of the resources boom is tellingly reflected in the relative performance of the nation’s office markets.”

The Sydney CBD recorded the sharpest six-month fall in vacancies, dropping from 9.7 percent to 8.2 percent.

The Canberra market also delivered a slight decline in vacancies, from 10.3 percent to 9.8 percent.

However, in both cases, low levels of new supply combined with stock withdrawals had a bigger impact on the vacancy factor than strong demand.

Despite negative demand, Adelaide’s CBD also posted a vacancy decrease from 7.8 percent to 7.7 percent, due primarily to stock withdrawals.

Vacancies in all other CBD markets increased, but for different reasons.

Occupied stock in the Perth CBD grew by a spectacular 12 percent (net), posting record supply and record demand. In fact, net absorption was eight times higher than the city’s historical average.

Nevertheless, the vacancy rate edged up from 3.3 percent to 4.2 percent.

Vacancies in the Brisbane CBD also rose (from 6.2 percent to 7.9 percent) despite three years of above average demand.

Vacancies in Australia’s non-CBD markets fell marginally from 9.1 percent to 9.0 percent, reflecting a period of low supply and solid demand.

The Property Council’s Office Market Report tracks future supply and raises a red flag over the year’s worth of office space which is slated to enter the market in the next six months.

It identifies supply hotspots as the Melbourne CBD, Adelaide CBD, Canberra and Brisbane Fringe.

Headline comments:

• Australia’s office market vacancy decreased over the six months to July 2012 to its lowest level since January 2009
  
• Net absorption and supply additions were above historical levels
  
• The total CBD market vacancy decreased over the period
  
• Of the CBD markets, only Sydney CBD, Canberra and Adelaide CBD experienced vacancy decreases from the last period
  
• The total non-CBD market vacancy decreased over the period
  
• The non-CBD market experienced below average levels of net absorption, supply additions and withdrawals
  

Vacancy & supply analysis:

• Australian office market vacancy decreased from 7.9 percent to 7.8 percent, the lowest since January 2009
  
• Net absorption was 291,450 sqm over the six months to July 2012. This result is almost 50 percent higher than the 20-year historical average (200,082 sqm)
  
• 404,857 sqm of space was added over the six months to July 2012. The 20-year historical average is 283,986 sqm
  
• A total of 122,255 sqm was withdrawn over the period, which is below the 20-year historical average of 149,234 sqm
  
• By net absorption, the best performing markets were the Perth CBD, Sydney CBD, Brisbane CBD and Melbourne CBD
  

CBD markets:

• Vacancy for the total Australian CBD office market decreased from 7.4 percent to 7.3 percent, to its lowest level in three years
• Only the Sydney CBD, Canberra and Adelaide CBD experienced vacancy decreases from the last period
  
• The CBD markets with the lowest vacancy are Perth (4.2 percent) and Melbourne (5.6 percent)
  
• Overall net absorption was 242,814 sqm, almost double the 20-year historical average of 119,510 sqm
  
• Over the 6 months to July 2012, the Perth CBD posted the highest demand rate of all CBD markets surveyed of 8.0 percent. The demand rate is the amount of space absorbed as a portion of total stock
• A total of 342,644 sqm of stock was added to CBD markets over the period, more than 50 percent higher than the 20-year historical average of 211,395 sqm
• 109,526 sqm was withdrawn. The 20-year historical average is 118,509 sqm

Non-CBD markets:

• Vacancy for the total Australian non-CBD market decreased from 9.1 percent to 9.0 percent, the lowest since January 2009
  
• Net absorption was 48,636 sqm. The 20-year historical average is 77,852 sqm
• 62,213 sqm of stock was added to non-CBD markets over the period. The 20-year historical average is 72,590 sqm
  
• 12,729 sqm of stock was withdrawn over the period. The 20-year historical average is 30,725 sqm
• The non-CBD markets with the lowest vacancy are West Perth (3.2 percent), Chermside (5.1 percent) and Adelaide Fringe (5.5 percent)
• 4 of the 14 non-CBD markets surveyed in July 2012 Office Market Report have vacancy of more than 10 percent

Future supply - total:

• The 20-year average annual supply of space to the total Australian market is 580,358 sqm
  
• A total of 471,722 sqm of stock is due to be added in the second half of 2012
• In 2013 a further 493,234 sqm is due to come on-line around Australia; followed by 232,488 sqm in 2014; and a further 525,156 sqm in 2015
• A total of 1,674,774 sqm is mooted

Future supply - CBD markets:

• The 20-year average annual supply of space to the total CBD markets is 432,671 sqm
• A total of 388,917 sqm of stock is due to be added to the CBD markets in the second half of 2012
  
• In 2013 a further 404,115 sqm is due to come online, followed by 135,147 sqm in 2014 and 485,056 in 2015
• A total of 1,084,950 sqm is mooted

Future supply - non-CBD markets:

• The 20-year average annual supply of space to the total non-CBD markets is 147,688 sqm
  
• A total of 82,855 sqm of stock is due to be added to the non-CBD markets in the second half of 2012
  
• In 2013 a further 89,119 sqm is due to come online, followed by 97,341 sqm in 2014 and 40,100 in 2015
  
• A total of 589,824 sqm is mooted

Key market indicators, all Australian office markets (aggregate), Jan 2012

Best performing markets, by net absorption (6 months to Jul 2012)

Vacancy, Australian CBD markets, Jul 2012

Vacancy, Australian non-CBD markets, Jul 2012

For further comment:

Peter Verwer
CEO, Property Council of Australia
Ph: 02 9033 1926 or 0407 463 842

John Nguyen
National Research Manager
Ph: 02 9033 1943 or 0408 637 164

Chris Larsen
Director – Publishing & Communications
Ph: 02 9033 1935 or 0434 417 166

For full analysis and coverage, visit the dedicated website: www.officemarketreport.com.au