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Australian office vacancies have decreased over the first half of 2019, but tenant demand has only had a modest impact on this result reflecting the softer economic conditions over the period, according to the latest Property Council Australian Office Market Report.
Overall, the Australian office market vacancy rate decreased to 8.3 per cent for July 2019 (down from 8.5 per cent in January 2019). Net tenant demand grew by only 0.1 per cent for CBDs and 0.4 per cent for non-CBDs in the six months to July 2019, compared with 0.7 per cent and 0.2 per cent in the previous period.
“Office markets provide a unique window into business activity and sentiment, and it’s one that shows only minimal pick-up in demand for office space around the country,” said Ken Morrison, Chief Executive of the Property Council.
“The July 2019 results show that while office vacancy has tightened slightly overall, this has been mostly driven by withdrawal of stock from the market rather than tenant demand.
“In fact, net tenant demand for CBD office space grew by just 0.1 per cent over the six months, its lowest growth in over four years, a clear indicator of a softening economy.
Vacancy in the Sydney CBD office market decreased from 4.6 per cent to 4.1 per cent in the six months to January 2019.
Sydney CBD vacancy is second only to Melbourne CBD, at 3.2 per cent.
Net supply totalled to -26,935sqm with 28,212sqm of gross supply additions and 55,147sqm of withdrawals over the six months to January 2019.
Sydney CBD recorded 1,299sqm of net absorption over the period.
Strong tenant demand was primarily concentrated within the Western precinct, and to a lesser extent, the Walsh Bay and City Core precincts.
Demand for Premium Grade showed the strongest results at 15,356sqm.
80,000sqm is projected to be brought online over 2019 and just over 100,000sqm to be supplied the year after.
The Melbourne CBD office market continues to record the lowest vacancy rate across all Australian CBDs.
The Melbourne CBD office market has decreased from 3.6 per cent to 3.2 per cent over the six months to January 2019.
The market recorded 69,898sqm of net absorption; more than double the historical average
Demand for Melbourne CBD office stock was primarily concentrated in the Docklands and Western Core precincts.
A total of 98,758sqm was supplied over the six months to January 2019, while 42,134sqm of stock was withdrawn over the period.
Almost half a million square metres of space is projected to be supplied over the next two and a half years, the largest of all CBDs.
Vacancy across the Brisbane CBD decreased from 14.7 per cent to 13.0 per cent over the six months to January 2019.
The Brisbane CBD market recorded net absorption of 25,192sqm over the period; more than double the historical average.
16,306sqm of office stock was withdrawn from the market over the last six months with no additional supply.
Only 54,900sqm of space is due to come online in the short to medium term.
Tenant demand was primarily concentrated in A and B Grade stock, leading to the overall decrease in vacancy across the Brisbane CBD.
Brisbane Fringe recorded an increase in vacancy to 14.8 per cent in the six months to January 2019.
Adelaide CBD vacancy has decreased by 0.5 per cent to 14.2 per cent in the six months to January 2019.
The vacancy decrease was due to positive demand, and to a lesser extent, withdrawals.
Net absorption was 6,394qm while withdrawals totalled 750sqm over the period.
Positive absorption was primarily the result of new entrants to the market (i.e. new businesses or tenant relocation from outside market boundaries).
There was no new supply additions in the six months to January 2019.
Over the next two years, only 29,600sqm will be supplied to the Adelaide CBD office market.
Adelaide Fringe vacancy increased from 11.0 per cent to 12.6 per cent in the six months to January 2019.
Perth CBD vacancy rate decreased in the six months to January 2019 from 19.4 per cent to 18.5 per cent.
A significant level of withdrawals primarily attributed to the fall in vacancy.
In the six months to January 2019, Perth CBD recorded net absorption of 6,752sqm.
Following 70,897sqm of new stock projected to be brought online over the next 12 months, there is no other supply in the pipeline.
West Perth vacancy has decreased from 15.8 per cent to 14.8 per cent in the six months to January 2019
While showing signs of a recovering market, Perth CBD vacancy is still much higher than the national average of 8.5 per cent.