2018 Office Market Outlook upbeat: Dexus

2018 Office Market Outlook upbeat: Dexus

2 February 2018

A surge in jobs growth, a budding service sector, and minimal office supply will continue to benefit office markets across Australia in 2018, says the latest research from property heavyweight Dexus.

Commenting on the release of the Australian Real Estate Quarterly Review Q1 2018, Dexus General Manager Research, Peter Studley, said: “Office markets will benefit from a surge in jobs growth, including in Queensland and Western Australia, where economic recovery is lagging the eastern seaboard.”

“Over 400,000 jobs were created in Australia last year, the highest rate of growth in twelve years and double the long-term average.

“Businesses are hiring again, which bodes well for office demand across the country in a year when very little new space is being supplied to the market,” he said.

According to Dexus, the eastern seaboard office markets experienced a stellar year in 2017.

Effective rents grew by double digits across most markets with Sydney and Parramatta CBDs leading the charge, up 26 per cent and 25 per cent respectively for prime assets. Both markets are expected to perform strongly in 2018 as they continue to benefit from low vacancy and positive demand supported by infrastructure investment.

Citing CBRE research, the AFR predicts Sydney’s office market vacancies could reach as low as 3.4 per cent as the supply of new office space tracks under the historical average for another two years.

Melbourne continued to lead the office markets in terms of occupier demand, recording 91,100sqm in net absorption for the year on the back of a powering Victorian economy and robust population growth.

CBRE Associate Director, Research, Felice Spark said Melbourne had a significant supply pipeline over the next few years, commencing in 2018, with circa 580,000sqm of new supply being added to the market.

“This will result in rental growth being more subdued this year, but still positive, as strong demand is expected to drive vacancy down below 4.5 per cent by the end of 2018,” Ms Spark said.

Brisbane and Perth also proved they were on the mend, recording very strong net absorption of 33,200sqm and 41,800sqm respectively in 2017.

Vacancy levels declined across the major CBD markets, with vacancy levels below the long-term average.

Sydney and Melbourne delivered strong rental growth in 2017. Brisbane and Perth rents were relatively flat as high vacancy remained an issue.

“Australia’s tightening office markets provide a window into a strengthening economy, and these results are certainly encouraging,” Property Council Chief Executive Ken Morrison said.

Citing Colliers International’s latest Office Demand Index report, the AFR reports a 19 per cent increase in office leasing inquiries in the final quarter of last year points to continued strong activity this year.

Inquiries increased across all segments of the market, said Simon Hunt, Colliers’ managing director of office leasing.

Among the key Dexus office market predictions for 2018 are:

  • Sydney markets (especially the CBD, Parramatta and North Sydney) should outperform with strong rental growth benefiting from a robust NSW economy and minimal supply.
  • Melbourne will continue to record the strongest take-up in 2018 helped by population growth of 2.7 per cent per annum. While supply is expected to ramp up from FY2019 onward, strong demand should continue to support rental growth over the next 6-12 months.
  • Brisbane and Perth will see a return to rental growth (albeit mild) in 2018 due to improving state economies, positive demand and falling vacancy rates.