‘Wild ride’ for office market as vacancy drops

‘Wild ride’ for office market as vacancy drops

4 August 2017

Companies wishing to lease office space in Sydney or Melbourne had better call an agent quick, says The Sydney Morning Herald.

The paper’s tongue-in-cheek call comes following the Property Council of Australia’s most recent  Office Market Report. The report predicts that a combination of rising white-collar employment, residential conversions, and few new developments on the immediate horizon will soon soak up office supply.

The Property Council Australian Office Market Report is the country’s definitive office market report tracking over 5,300 office buildings covering 25 million square metres of office space nationwide.

According to the report, new office supply across Australia will slow to about half the historic average over the next two and a half years.

Over the last six months, the Sydney vacancy rate fell to 5.9 per cent over the six months to July, compared with 6.2 per cent in January, to hit its second lowest point in eight and a half years.

In Melbourne, 6.5 per cent of the city’s offices were empty, its lowest point in five years.

“Positive tenant demand for office space has been the big driver of office markets around the country over the last six months, and this will continue with limited new supply on the horizon,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“We saw positive demand for office space in every CBD except Brisbane, and across a number of the non-CBD markets.

“While vacancy rates remain high in some centres, they are no longer facing significant new office supply coming on to the market,” Mr Morrison said.

Mark Rasmussen, Savills state director of office leasing in Victoria, told the SMH that Melbourne’s CBD office market is in for a “wild ride”, with vacancies tipped to continue the downward trend and demand expected to remain strong.

“Tenants can expect higher rentals, lower incentives and lack of options, particularly in late 2018 and 2019,” Mr Rasmussen said.

Some agents predict that office rental rates will lift by 3.5 per cent per year out to 2020, reports the SMH.

According to Colliers International Associate director for Office Leasing, Milly Stockdale, the demand for quality fitted office suites is taking Melbourne by storm.

“Colliers International has transacted 125 [turn-key office] deals for a total of 29,402 square metres in the past 12 months in the CBD,” she said.

The deals reflected growing demand for office space from the businesses services, IT, finance, and technology sectors.

In a parallel report, The Australian says that more than 250,000 square metres of new office stock will hit the Melbourne CBD through to 2019, including Tower 5 at Walker Corporation’s Collins Square, Cbus Property’s Collins Arch “Pantscraper” at 447 Collins Street and 311 Spencer Street, and Mirvac’s Olderfleet at 477 Collins Street.

A little over 150,000 square metres is scheduled to hit the Sydney CBD, including Brookfield’s 10 Shelley St and 10 Carrington, the overhauled Darling Park Tower 2 and Investa’s 60 Martin Place.

The latest CBRE Research office outlook predicts that national office vacancies will reach a low of circa 8.5 per cent by the first half of 2019 before the next cycle of supply begins to flow into the office markets over 2019-2021.