A new report has found that rising demand for office spaces are driving down vacancy rates in CBDs across Australia, with Melbourne and Sydney now at decade-lows.
According to the Property Council of Australia’s latest Office Market Report, Australian office vacancy fell by 0.7 per cent in the six months to January 2019 to 8.5 per cent.
The tightest markets over the period were the Melbourne CBD where the vacancy rate fell to 3.2 per cent (down from 3.6 per cent) and the Sydney CBD which dropped to 4.1 per cent (down from 4.6 per cent).
The report also recorded a decrease in office vacancy rates in all capital city markets (aside from Hobart) – including in higher vacancy markets.
Property Council of Australia (PCA) Chief Executive Ken Morrison said office vacancies have tightened in CBDs across the country, with Melbourne and Sydney now at incredibly low levels.
“While their headline vacancy results are similar, the supply and demand dynamics of Sydney and Melbourne are really a tale of two cities…”
“Both markets have strong economic fundamentals, but the Melbourne CBD has seen both strong supply of new office space and strong demand for that space. In the Sydney CBD the combination of a net withdrawal of office space and a tight market has left demand nowhere to grow into,” Mr Morrison said.
Melbourne was a powerhouse over the period, adding an impressive 98,758 square metres of additional office space during the last six months, passing Sydney’s 28,212 square metre increase.
The PCA anticipates that nearly 1 million square metres of office space will be added to Australian CBD markets over the next three years, with half of this new space being supplied to the Melbourne market which is expected grow by more than 10 per cent of its current stock.
PCA NSW Executive Director Jane Fitzgerald said Australia has two of the strongest office markets in the Asia Pacific region, yet Sydney is losing ground to their southern neighbour, both in terms of space in the pipeline and demand.
“On current performance, Melbourne may overtake Sydney as Australia’s largest office market in the next two years or so – the question is what does this mean for Sydney?”
“There is still strong demand from foreign investors interested in Sydney and looking for prime office space, and the investment fundamentals are still solid in terms of a growing market with high returns and long leases available,” said Ms Fitzgerald.
“The future outlook is good – the completion of new transport projects including the North-West Metro and the South West metro in the years to come will open up new office space and opportunities for investment, and there may be an increasing diversity in demand from sectors such as tech and pharmaceuticals. The key will be creating the right environment for investment: we must get our CBD planning approach right to ensure we cultivate investment and ensure a competitive advantage over other CBDs in the Asia Pacific; attracting the best tenants and a strong pipeline of investment,” she commented.
More information on the Office Market Report can be found here.