Demand for space in CBD towers has risen in every capital city across the country, defying concerns that the pandemic-inspired work-from-home trend would decimate office markets and bolstering confidence in central city real estate.
Tenant demand rose an average 1 per cent across the CBDs, and by 0.7 per cent in suburban office markets over the last six months, according to the Property Council of Australia’s latest office market report.
Indeed, demand for space rose higher than historical averages in every capital city except for Sydney and Brisbane.
“The fact that there is positive demand across the CBDs, and not just positive demand but demand in excess over historical average in most cities: that is a very strong result given two years of pandemic and all the uncertainty,” Property Council of Australia chief executive Ken Morrison told The Australian Financial Review.
With demand holding up, vacancy levels rates bumped up only slightly from 11.9 per cent to 12.1 per cent at a national level, with that uptick the result of new supply in office space.
Vacancy rates rose in the last six months in only two CBDs: Melbourne, from 10.4 per cent to 11.9 per cent, and Brisbane, from 13.6 per cent to 15.4 per cent. Supply significantly outstripped demand in those CBDs.
The resilience of CBD office markets amid the turbulence of COVID-19, with vacancy rates increasing by just 3.3 per cent overall in the past two years, compares favourably with the 1990s recession, when vacancy rates blew out by 15.6 per cent over three years.
That robustness underpins expectations office rents, whose rate of decline eased last year, will steady this year and even grow in some cities. Colliers expects average prime net effective rents in the Sydney CBD, now at $651 per sq m annually, to rise 4.2 per cent.
In Melbourne, net effective rents – which factor in the value of incentives to tenants – are expected to track sideways over this year, while posting marginal or modest gains in Brisbane, Canberra, Adelaide and Perth.
The bi-annual stocktake of the office markets highlights a temporary disconnect between the relative strength in demand for space in CBD towers and the large numbers of employees still working remotely.