Strength of Sydney & Perth Office Markets most Resilient to COVID-19

Strength of Sydney & Perth Office Markets most Resilient to COVID-19

The largest companies in Australia are making tough decisions about how much space they need, driving up office vacancies and putting CBDs at risk.

The vacancy rate for Sydney’s CBD office market, however, remains below 10 per cent despite various lockdowns and COVID-19 restrictions.

The Property Council of Australia’s (PCA) latest Office Market Report reveals that Sydney’s office vacancy rate increased from 8.5 per cent to 9.2 per cent in the six months to June 30.

Across the country, the aggregate vacancy rate for all office markets increased only slightly from 11.6 to 11.9 per cent for the six months to July 2021. Overall CBD vacancy edged higher from 11.1 per cent to 11.2 per cent. While non-CBD markets also recorded a small vacancy increase, from 13.0 per cent to 13.6 per cent.

The report measures the levels of leased space, not worker occupancy of office space. Sydney has remained one of the most well-equipped markets to mitigate new challenges faced by the commercial office sector, as one of two mainland CBD markets across the country that recorded vacancy below 10 per cent. While Sydney did experience an increase in vacancy overall demand actually grew by 27,000sq m.

According to the recent PCA media release and the AFR acting NSW Executive Director of the Property Council of Australia, Lauren Conceicao, said the recent office occupancy rates were encouraging. “The CBD has been a slow-moving story, but tenant demand has increased by 0.6% from Jan to July 2021 and vacancy overall has increased from additional supply coming online, an increase from 8.5 per cent to 9.2 per cent,” Ms Conceicao said.

“Net CBD demand is above the historical average, with a notable uptick in the availability of subleasing and demand for premium is at its highest.”

Ms Conceicao said the resilience of the office market during this crisis is an excellent result for positioning Sydney as the best global city to invest in.

As reported by the AFR, Tim Molchanoff, Cushman & Wakefield’s head of office leasing, said the signs are good. “Demand has been almost double what we saw during the same period in 2020,” Mr Molchanoff said.

Joanne Henderson, head of research at Colliers, said Sydney’s impressive high level of net absorption – at 27,000sq m the best since January 2019 – could be attributed to the opening of Brookfield Place. “However, vacancy increased to 9.2 per cent with the addition of several newly refurbished buildings coming back to market such as 44 Martin Place.”

Cameron Williams, National Director, Office Leasing at Colliers, said tenants are upgrading and that space in premium buildings has been keenly sought.

“The current Sydney restrictions may delay some decisions in the near term, however, the momentum gained over the first half of 2021 means that this is more of a momentary delay.”

Stuart McSorley, director, advisory & transaction services – office leasing at CBRE, said enquiry levels have rebounded strongly. “Leasing activity in terms of enquiries and inspections has been most active among sub-500sq m tenants, while cost-cutting and workplace reactivation remain the key focus for larger occupiers,” said Mr McSorley.

Key results – six months to July 2021 include:

  • Aggregate Australian office market vacancy increased from 11.6 per cent to 11.9 per cent.
  • Net absorption (demand) was -11,742 sqm over the six months to July 2021. The historical average is 147,051 sqm. Net absorption in Melbourne CBD was -96,635sqm.
  • 200,044 sqm of space was added over the six months to July 2021. The historical average is 315,487 sqm.
  • A total of 145,466 sqm was withdrawn over the period, slightly less than the historical average of 160,876 sqm.
  • The markets with the strongest increases in net absorption (demand) were Canberra, Sydney CBD and Perth CBD.
  • A total of 401,605 sqm of stock is due to be added to the CBD markets in the second half of 2021, more than one and half times the historical average of 238,915 sqm. Of this, 55% will be in Melbourne, 14% in Perth, 11% in both Canberra and Brisbane, and 9% in Sydney.

The resilience of the office sector as a whole and more specifically Sydney & Perth puts forward a positive outlook for the markets, employment and the economy. Companies appear to be readying themselves for the new way of working and taking advantage of attractive commercial terms in a ‘Flight to Quality’ as higher grade offices and the major CBD locations become more affordable.

There is no getting around it, in our view at PHQ, when restrictions lift and we gradually return to our workspaces be they office, retail or industrial the signals are nothing short of spectacular. We have heard and read far too many Doom & Gloom pieces, the remote worker 15mins in the lime light is up! No doubt there will be change but not a great deal more than was already taking place in the few years immediately prior to the Pandemic.

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