Sydney CBD office vacancies have plunged to an 18 year low – just 3.7 per cent – but the result has more to do with a withdrawal of office space from the market instead of an increase in demand from tenants, according to the Property Council of Australia’s latest Australian Office Market Report.
Nearly 112,000 sq m of office space was withdrawn from the Sydney CBD market over the last six months for refurbishment, twice the 15 year average.
The Property Council’s NSW President Denis Hickey said the low vacancies and moderate future supply of office
space means that the Sydney CBD market will be driven by demand in the medium term.
“The Sydney CBD office market is as tight as a drum, but not because of powerful demand for new space from tenants,” Mr Hickey said.
“This is the third reporting period in a row where more stock has been taken out of the market than added to it. There is 104,000 sq m less office space in the CBD than there was 18 months ago.
“The extra office space which was added two years ago has now been absorbed by the market and the withdrawal of other stock has driven vacancy rates down.
“Over the next two years we expect relatively modest amounts of new supply to be added – 124,000 sq m this year and 68,000 sq m in 2009 – with 40-50 percent of this precommitted by tenants.
“The big variable for Sydney is demand. Will white collar employment growth pick up or will the CBD’s exposure to US financial firms mean less growth? Time will tell.”
The report showed that Sydney’s vacancy rate has been on the decline since January 2005, dropping from 5.6 per cent to 3.7 per cent over the last six months.
“Office vacancies have hit an 18 year low in the Sydney CBD, lower than Melbourne and Adelaide but still more than Brisbane and Perth which are a remarkable sub-one per cent.
“In Sydney vacancies fell across all grades of space, with premium buildings now down to 4.5 per cent and A grade space at 1.7 per cent.”
The 240,000 sq m of office space to be contained in the Barangaroo redevelopment is yet to be offered to the market and therefore is not yet included in the future supply forecasts in the Office Market Report. The Property Council will be reviewing its supply forecasts again in six months.
