The Sydney CBD office vacancy rate hit its lowest level since the 2000 Olympic Games as take-up of office space surged, new figures from commercial agents JLL show.
Sydney ended 2018 with a vacancy rate of 4.1 per cent (down from a 10-year-low of 4.6 per cent in July according to Property Council figures) which combined with Melbourne’s 3.7 per cent vacancy rate – the lowest since the late 1980s– drove down the national CBD office vacancy rate to 8.6 per cent, the lowest in six years.
Behind the record low vacancies was a very strong take-up of vacant space, with total net absorption for the year reaching 373,700 square metres – the highest annual result since 2010.
“The volatility in global equity markets over the latter part of 2018 did little to impact leasing activity with organisations willing to read through the noise and commit to long-term leases,” said JLL head of research for Australia, Andrew Ballantyne.
The low vacancy rates should boost already strong rental growth, playing into a global real estate investment shift towards income growth over capital growth with values now close to peaking in markets like Sydney, where yields have shrunk well below 5 per cent.
Most forecasts are for vacancies to tighten further, with consultants BIS Oxford Economics expecting the Sydney CBD office vacancy rate to hit 3 per cent by the end of 2019 and the wider metropolitan market to fall to 4.5 per cent.
“BIS Oxford Economics forecast metro-wide net additions (office completions less withdrawals) at less than 100,000 square metres per annum and close to zero in the CBD over the two years to December 2019,” said analyst Lee Walker.
“One hundred thousand square metres is around half the average office space added to the market each year over the last 30 years.”
Dexus, the country’s premier office landlord, expects the Sydney CBD office vacancy number to end up “well below 4 per cent” while agents Colliers International are forecasting a 3.5 per cent vacancy rate in Sydney by the middle of 2019.
While Sydney had a stellar year, Melbourne was in fact the strongest performing CBD office market over 2018 with net absorption of 167,700 square metres of space, 44 per cent of the national take-up figure.
“The completion of new developments over 2019 and 2020 will only provide limited opportunity for organisations seeking space [in Melbourne] as over 60 per cent of this space has been pre-committed,” said JLL head of leasing Tim O’Connor.
Both Perth and Brisbane’s prime office markets improved over the year with lower vacancy rates and positive net absorption, but secondary office markets in these cities weakened, suggesting a flight to quality.
“A number of organisations have taken the opportunity to centralise operations back into the Perth CBD as they seek to attract and retain highly skilled workers,” Mr Ballantyne said.
“However, take-up in the Perth CBD is more than a displacement story with organisations in professional services, financial services and the public sector increasing their occupational footprint.”
According to JLL, suburban metro markets also benefited from the strong leasing conditions and flow through of demand from the CBD. The Brisbane Near (inner) City, Melbourne suburban, Parramatta and South Sydney all recorded net absorption above historical averages in 2018.