Increased supply, reduced demand force office vacancies up

11 February 2021

Australian office vacancies have edged higher as COVID-19 has reduced demand for office space at the same time that significant new supply has entered the market over the six months to January 2021.

The Property Council of Australia Office Market Report for the six month period to January 2021 shows that Australia’s office market vacancy rate increased from 9.6 percent to 11.7 percent – its highest level since January 1997.

CBD vacancy increased from 9.2 per cent to 11.1 percent, the highest level since January 2015. Non-CBD markets recorded a larger increase in vacancy, from 10.4 percent to 13.4 percent, the highest level since 1995.

Property Council Chief Executive Ken Morrison said while COVID-19 had reduced demand for office space, most of the increase in vacancy had related to new office buildings coming into the market.

“While it was not a surprise to see office vacancies increase in the middle of a pandemic, it is the new supply of office space that is responsible for three quarters of this impact, not reduced tenant demand,” Mr Morrison said.

“COVID-19 has reduced demand for office space as businesses downsize, but this had a much smaller influence on vacancy rates than the new supply coming on stream.

“Our biggest CBD office markets of Sydney and Melbourne were in very strong shape prior to the onset of the economic downturn caused by the pandemic.

“While vacancy rates for the six months to January 2021 are now the highest in some years, there is still strong interest in commercial property as evidenced in recent deals, particularly for premium CBD stock.

“Despite talk of a flight from the CBD in response to COVID-19, non-CBD markets also saw notable increases in vacancy indicating that widespread health restrictions across all workplaces and the economic downturn caused by the pandemic were strong prevailing influences, rather than an aversion to CBD offices.

“As our office markets adapt to a COVID-normal setting, business and government have a critical role to play in supporting the return to office workplaces and helping more people come back to office precincts,” Mr Morrison said.

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

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.

Key results – six months to January 2021

CBD markets

Non-CBD markets

Future supply - total

Future supply - CBD markets

Future supply - Non-CBD markets

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

Date of Original:  04 February 2021

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