Demand for Australia’s office market has bounced back from the global financial crisis (GFC), but a sustained recovery is contingent on greater confidence about economic growth fundamentals.
The Property Council’s latest Office Market Report shows Australia’s office vacancy dropped from 10.0 percent to 9.5 percent in the six months to January 2011.
Property Council CEO, Peter Verwer, says the result was driven by resurgent demand for office space.
Net absorption, the best indicator of demand for office space, was 302,673sqm over six months to January 2011.
“In a short period we have moved from a rapidly shrinking market to one in which demand is growing at almost twice the historical average,” Mr Verwer says.
There is further evidence of a demand-led recovery in the sub-lease market. Over the six months to January 2011, more than 90,000sqm of sub-lease space was absorbed by growing tenants, pushing sub-lease vacancy down from 1.5 percent to 1.1 percent.
“Demand has returned to Australia’s office market as business sentiment has recovered,” Mr Verwer says.
“Tenants are making decisions again. Many occupiers are primed for expansion, and favourable leasing incentives are persuading businesses to reassess leasing opportunities.”
“Over the six months to January 2011, the lift in demand for office space was strong enough to produce the first vacancy decrease in the Australian office market for three years.”
Mr Verwer says while future supply is unlikely to trouble Australia’s office market over the short to medium term, the recovery will be subdued.
“These latest figures show the supply pipeline is reasonably balanced in major office markets around the country, except for Perth and Canberra,” he says. “New supply for Australia’s largest office market, the Sydney CBD, will be quite moderate over the short to medium term.”
Mr Verwer says the demand for office space was strongest in CBD markets. Vacancy fell from 9.0 percent to 8.6 percent in this segment, while net absorption of 181,114sqm was recorded, nearly twice the 20-year historical average.
“Our research also shows that tenants moved to better quality space at the same time as they signed on for bigger tenancies,” he says.
“The A Grade segment posted a decrease in vacancy from 8.1 percent to 7.4 percent in the six months to January 2011, despite the addition of 129,598sqm in stock over the period.”
The Office Market Report shows all CBD markets recorded a decrease in vacancy and positive net demand in the six months to January 2011, with the exception of Adelaide and Hobart.
The majority of non-CBD markets also posted vacancy decreases in the six months to January.
Only 74,808sqm of stock was withdrawn from Australia’s office market over the period, significantly less than the 20-year historical average of 150,717sqm.
“At present we are not seeing the boom in refurbishment and conversion to residential uses that characterised office markets in the early 1990s,” Mr Verwer says.
For more information:
CEO, Property Council of Australia
Ph: 0407 463 842