Total market vacancy declined to 9.5% over the half year to January 2011, with demand strongest in CBD markets, the Property Council’s latest Office Market Report shows. Net absorption, the best indicator of demand for office space, was 302,673sqm over six months to January 2011.
Property Council chief executive officer, Peter Verwer, said the result was driven by resurgent demand for office space. ‘In a short period we have moved from a rapidly shrinking market to one in which demand is growing at almost twice the historical average,’ he explained.
There is further evidence of a demand led recovery in the sub lease market. Over the six months to January 2011, more than 90,000 square meter of sub lease space was absorbed by growing tenants, pushing sub lease vacancy down from 1.5% to 1.1%.
Demand has returned to Australia’s office market as business sentiment has recovered. ‘Tenants are making decisions again. Many occupiers are primed for expansion, and favourable leasing incentives are persuading businesses to reassess leasing opportunities. Over the six months to January 2011, the lift in demand for office space was strong enough to produce the first vacancy decrease in the Australian office market for three years,’ said Verwer.
However, while future supply is unlikely to trouble Australia’s office market over the short to medium term, the recovery will be subdued. ‘These latest figures show the supply pipeline is reasonably balanced in major office markets around the country, except for Perth and Canberra. New supply for Australia’s largest office market, the Sydney CBD, will be quite moderate over the short to medium term,’ added Verwer.
Demand for office space was strongest in CBD markets. Vacancy fell from 9% to 8.6% in this segment, while net absorption of 181,114 square meters was recorded, nearly twice the 20 year historical average.
‘Our research also shows that tenants moved to better quality space at the same time as they signed on for bigger tenancies. The A Grade segment posted a decrease in vacancy from 8.1% to 7.4% in the six months to January 2011, despite the addition of 129,598 square meters in stock over the period,’ explained Verwer.
The Office Market Report shows all CBD markets recorded a decrease in vacancy and positive net demand in the six months to January 2011, with the exception of Adelaide and Hobart. The majority of non CBD markets also posted vacancy decreases in the six months to January.
Only 74,808 square meters of stock was withdrawn from Australia’s office market over the period, significantly less than the 20 year historical average of 150,717 square meters.
‘At present we are not seeing the boom in refurbishment and conversion to residential uses that characterised office markets in the early 1990s,’ Verwer added.
