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The COVID pandemic may not have managed to entirely kill office culture, with Australian workers slowly filtering back into communal workspaces across the nation’s capitals, but the rate of return is still not enough to call the sector strong.
According to the latest biannual edition of the Property Council of Australia’s (PCA) Office Market Report, demand for central business district offices rose by 0.5 per cent over the past six months; however, the emergence of new office buildings have pushed aggregate vacancy rates down.
Overall, CBD vacancy rates increased from 11.3 per cent to 12 per cent, with non-CBD areas seeing this figure jump up to 15.2 per cent, having previously rested at 13.9 per cent.
Brisbane and Adelaide were the only two national capitals to record a reduction in vacancy rates, down from 15.4 to 14 per cent and 14.5 to 14.2, respectively. These cities were the only two where supply didn’t outstrip demand.
Elsewhere, Canberra’s vacancy rate rose from 6.3 per cent to 8.6 per cent, Sydney and Melbourne climbed from 9.3 per cent to 10.1 per cent and 11.9 per cent to 12.9 per cent, respectively, while Perth’s jumped slightly from 15 per cent up to 15.8 per cent.
Despite these vacancy rate falls, the supply of Australian office space has been above the historical average in four of the last five reporting periods, a sign that the sector is defying predictions of a demand crash.
“In a healthy sign for our CBDs, the office market continues to defy previous dire predictions, with demand still in positive territory after nearly three years of the pandemic,” Property Council chief executive Ken Morrison said.
“Demand for office space was strongest in Brisbane at more than three times historic average, with Sydney, Perth and Adelaide also above average, while demand grew 0.1 per cent in Melbourne and dropped in Canberra by 0.1 per cent.
“While the Australian office vacancy increased by 0.8 per cent to 12.9 per cent over the six months to July 2022, it’s new office space that is driving this outcome, not businesses wanting less office space.”
Moreover, sublease vacancies increased slightly in both CBD and non-CBD markets, with Melbourne responsible for almost half of all CBD sublease vacancies.
It is anticipated that supply will remain below the historical average until July 2025, while conversely, non-CBD supply is projected to remain above the historical average until July next year before a reduction occurs in the subsequent years.
“While the office market has proven to be resilient and demand is in positive territory, our CBDs still need attention,” Mr Morrison said.
“While demand for space is increasing, the number of actual office workers in our city centres is well below pre-pandemic levels and threatens the ecosystem of cafes, restaurants and retailers that help make our CBDs such a special place.”
He concluded that CBD recovery needs to be at the forefront of both governments and businesses, even as COVID-19 infections continue to surge.
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