National office vacancy rate hits two-year high

Sydney’s office leasing market will remain hot for some time

The Australian capital city office vacancy rate is at the highest point in two years, as a growing number of spaces come on to the market and areas outside of Sydney and Melbourne show renewed signs of struggling.

The Property Council of Australia’s cornerstone annual report published today reveals the CBD vacancy rate has hit 11%, driven by major moves in the Perth, Brisbane and Adelaide markets.

The Sydney CBD has the lowest rate of any capital city with a vacancy rate of just 5%, followed by the Melbourne city centre which sits at just 7%.

Economic impact: Dearth of Sydney CBD office space begins to bite

However, vacancy rates in Perth have shot as high as 22%, while Brisbane is at 17% and Adelaide at 15%.

Victoria has two of the three most popular markets in Australia, with Southbank and St Kilda Rd recording major vacancy decreases over the past six months, as a growing number of businesses look to establish operations outside of the CBD.

Property Council of Australia CEO Ken Morrison.

Property Council of Australia CEO Ken Morrison.

In Brisbane, the level of demand rose dramatically since January with nearly 40,000sqm of office space taken up, which is estimated to be nearly five times its historical average. Despite the surge, the city still has a high vacancy rate which is expected to increase even more in the next year as office property projects currently under development come online.

The PCA estimates that nearly 300,000sqm of new office floorspace will come on to the market in the next six months, primarily in Sydney — through the Barangaroo development — Melbourne and Brisbane

The Perth market is expected to enter a hiatus, with no developments planned until 2018 when just 50,000sqm is expected to be released as a result of the dramatic slowdown prompted by the slowing resources boom.

Brisbane has a high vacancy rate now and a strong supply pipeline, so in that city it is going to be a story of whether there is enough demand to take up the new space

PCA CEO Ken Morrison says an increase in supply in the popular markets should be taken up by businesses, but those areas struggling could face trouble.

“We are seeing a fair bit of supply coming in Sydney but there’s been strong demand in that market and that supply will be absorbed,” he says.

“In Melbourne there has been strong demand but I think it will be worth watching how that demand plays out in the next six months.

Health and IT are expected to drive demand in Brisbane's office market.

Nearly 40,000sqm of office space has been taken up in Brisbane since the start of January.

“Brisbane has a high vacancy rate now and a strong supply pipeline, so in that city it is going to be a story of whether there is enough demand to take up the new space.”

Morrison says confidence in the Sydney market remains buoyant because of the state government’s infrastructure investment programs, the recovery of the financial services sector in the past few years and ‘white collar’ job creation.

Analysts say that Brisbane us the surprise performer.

CBRE’s Mark Curtain says the city had its first positive result since the second half of 2012 and the third strongest six months in the past decade.

It was also only 8000sqm below the Sydney CBD and ahead of all other markets monitored.

The most prominent shift was Tatts Group taking 18,000sqm at 180 Ann St, followed by the Queensland Department of Education’s move to 60 Albert St, where it leased 8036sqm.

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