It’s salad days for landlords with vacancy rates in the Sydney and Melbourne CBD office markets at their lowest in a decade.
At the same time, resource-based capitals of Brisbane, Perth and Adelaide – where BHP has pre-committed to Charter Hall’s GPO redevelopment – showed the greatest vacancy rate declines over the second half of the year.
Overall, Australian office vacancy fell by 0.7 per cent in the six months to January 2019 to 8.5 per cent, according the latest Property Council Australian Office Market Report.
With Melbourne at 3.2 per cent and Sydney dropping to 4.1 per cent, both markets are now at “incredibly low levels”, said PCA chief executive Ken Morrison.
“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.”
On current forecasts Melbourne will account for half of the additional 1 million square metres of office space coming onto the Australia’s CBD markets over the next three years.
In Sydney, meanwhile, tenants are learning to hold their breath instead.
“We are finding that rather commit to new space in the current cycle, occupiers are reducing floor space ratios and squeezing more staff into existing space,” said Colliers International’s Simon Hunt.
Office vacancy rates are partly a proxy for the health of white-collar employment.
Driving the demand for office are the professional, scientific and finance and insurance services. There are a record number of jobs available in NSW, almost 90,000 at last count, noted Colliers researcher Anneke Thompson.
“With increased regulations in addition to banks considering split operations, we expect the finance industry will record a strong number of transactions over 2019,” Mr Hunt said.
And as the squeeze on space spreads nationally, even landlords in Perth are starting to harvest the gains.
Incentives in the Perth CBD declined by 100 basis points in the last quarter of 2018, with a further contraction forecast in 2019, according to CBRE researcher Felice Spark.
“Perth CBD will see the highest level of prime net effective rental growth of all major CBD markets,” she said.
“As Sydney and Melbourne growth rates begin to wind back, we are forecasting that incentives will begin to decline in Perth as the outlook improves in the resource sector.”