Office leasing market momentum builds in 2017
JLL Research has released 2Q17 statistics on national office markets which shows the national CBD office market vacancy rate fell to 10.9% in 2Q17 (the lowest rate since March 2013) and with all six major CBD office markets recording positive net absorption in the same quarter since September 2011.
According to JLL, leasing enquiry and activity has remained strong in Melbourne with the convergence between markets led by a sustained improvement in Brisbane and Perth. Net absorption is constrained in Sydney by a lack of contiguous stock and owners are experiencing high tenant retention rates and positive rental growth.
The Perth CBD recorded a third successive quarter of positive net absorption in Q2 (10,600 sqm) and a reduction in vacancy to 22.7%. Sub-lease availability in the Perth CBD has reduced by almost 24,000 sqm in 2017.
The recovery in Brisbane is more advanced than Perth with the Brisbane CBD recording a tenth successive quarter of positive net absorption in 2Q17. Brisbane CBD net absorption was 22,500 sqm in Q2 and 52,700 sqm over the 2016/17 financial year. Vacancy tightened by 0.8 percentage points over the quarter to 15.5%.
Melbourne recorded the strongest net absorption in Q2 (24,600 sqm) and over the 2016/17 financial year (162,700 sqm). Vacancy tightened to 7.1% in Q2 – the lowest rate since 1Q12. A shortage of contiguous space options in the Melbourne CBD is exerting upward pressure on rents with prime gross effective rents increasing by 2.9% in Q2 and by 16.2% over the 2016/17 financial year.
Sydney CBD net absorption was constrained by a shortage of contiguous space in Q2 (1,900 sqm). Nevertheless, vacancy tightened to 6.4% – the lowest level since 2Q08. Sydney CBD prime gross effective rents increased by 5.1% in Q2 and by 25.3% over the 2016/17 financial year. The rate of growth was even stronger for secondary grade assets with prime gross effective rents increasing by 29.7% over the past 12 months.
Canberra recorded positive net absorption of 5,300 sqm in Q2, while vacancy was largely unchanged at 11.8%. Prime gross effective rents increased by 2.7% over the 2016/17 financial year.
Adelaide recorded its highest quarterly positive net absorption figure since 4Q08 in 2Q17 (10,200 sqm). Leasing activity was concentrated in the secondary grade market and the headline vacancy rate tightened to 16.0%.
JLL expect the 2017/18 financial year to be positive for CBD office leasing markets as organisation expand, development activity is limited and vacancy trending lower. Rental growth will be evident for Sydney, Melbourne, Brisbane and Canberra.