Pandemic causes modest impacts on office markets so far

24 August 2020

The early stages of the COVID-19 pandemic has so far delivered only a modest effect on office vacancy rates, reflecting the strong base settings for most CBD markets at the outset of the pandemic.

Australian CBD and non-CBD office vacancy increased from 8.3 percent to 9.5 percent over the six months to July 2020 with flat tenant demand overall, according to the Property Council of Australia’s Office Market Report.

Despite the COVID-19 pandemic, aggregate Australian vacancy remains below its historic average, with the key Sydney and Melbourne CBDs sitting at less than six percent vacancy.

Office vacancies are calculated on whether a lease is in place for office space, not whether the tenant’s employees are occupying the space or working from home.

Property Council Chief Executive Ken Morrison said the record low rates of vacancy in our biggest CBD office markets of Melbourne and Sydney had provided a strong buffer against the initial impact of COVID-19.

“The impact of COVID-19 on our CBDs and office markets is still at an early phase, but so far the pandemic has had only a modest impact on vacancy rates,” Mr Morrison said.

“Office markets started this pandemic in good shape, with incredibly low vacancies in Sydney and Melbourne, and strengthening positions in most other markets.

“Vacancy rates have increased over the past six months, but tenant demand has so far been flat, not falling, and overall vacancies are still below the historic average.

“It’s a reminder that office markets have been resilient in the first stage of the pandemic, despite the fact that many office workers have spent months working from home.

“While there is plenty of commentary about the end of the office, the data doesn’t suggest this and there is a long way to go as business works its way through the economic and social impacts of COVID-19. 

“While office vacancies increased over the period, aggregate tenant demand was flat across CBD markets with vacancy increases driven by increases in supply. However tenant demand did vary from market to market, most notably in Sydney where net demand fell 1.2 percent.

“Sublease vacancy in the capital cities – a key metric in falling markets – increased by 0.2 percent, but this is still at modest levels compared to previous downturns.

“The reactivation of our CBDs and office buildings will be an important element of our economic recovery in coming months, and something that all levels of government will need to consider carefully.

“Vibrant CBDs drive investment, growth and productivity and must be part of our national recovery planning,” Mr Morrison said.

The vacancy rate for the Sydney CBD was 5.6 per cent (up from 3.9 per cent in January) and the Melbourne CBD vacancy was 5.8 per cent (up from 3.2 per cent in January).

Melbourne CBD vacancy was most significantly impacted by a 4.6 per cent increase in additional office supply, while the Sydney CBD vacancy was most influenced by 1.2 per cent reduction in tenant demand.

Vacancies in other capital city markets are sitting at Canberra at 10.1 percent, Brisbane at 12.9 percent, Adelaide at 14.2 percent and Perth at 18.4 percent.

All capital city markets recorded lower vacancy in prime over secondary stock.

While almost 400,000 square metres of new office space prepares to come onto capital cities markets in the remainder of this year, the Melbourne CBD will account for 48 per cent of this space of which 82 per cent is already pre-committed.

Almost 1.2 million sqm of office space will be supplied in CBD markets over the next two and a half years.

Highlights

 

CBD markets

 

Non-CBD markets

Future supply - total

 

Future supply - CBD markets

 

Future supply - Non-CBD markets

 

 

--ENDS--

 

Source:  Property Council of Australia - www.propertycouncil.com.au

Date of Original:  15 August 2020

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