The limited availability of prime grade contiguous space across most Australian office markets will lead to new pre-commitment activity in 2019
AUSTRALIA, 23 JANUARY 2019 – JLL Research has released 4Q 2018 statistics on national office markets. The figures showed positive net absorption of 84,300 sqm over the quarter and 373,700 sqm over 2018 – the highest annual result since 2010.
The national CBD office market vacancy rate compressed in 4Q18 (8.6%) – a reduction of 1.8 percentage points over 2018. Vacancy is now at the lowest level since 2012.
JLL Head of Research – Australia, Andrew Ballantyne said, “The volatility in global equity markets over the latter part of 2018 did little to impact leasing activity with organisations willing to read through the noise and commit to long-term leases.”
“While the focus has been on the strength of the leasing activity in CBD office markets, a high proportion of metro office markets had strong net absorption results in 2018. The Brisbane Near City, Melbourne suburban, Parramatta and South Sydney all recorded net absorption above historical averages in 2018,” said Mr Ballantyne.
The Perth CBD recorded net absorption of 16,600 sqm in 4Q18 and 50,800 sqm over 2018. Vacancy remains elevated (21.1%), but the spread between prime (16.0%) and secondary (28.8%) grade continues to widen as organisations seek out higher quality space.
Mr Ballantyne said, “The Perth CBD office leasing market recovery started in mid-2017 and gathered momentum over 2018. The net absorption result in 2018 was almost three times higher than the 25-year average of 17,700 sqm.
“A number of organisations have taken the opportunity to centralise operations back into the CBD as they seek to attract and retain highly skilled workers. However, take-up in the Perth CBD is more than a displacement story with organisations in professional services, financial services and the public sector increasing their occupational footprint,” said Mr Ballantyne.
Sydney CBD recorded 68,900 sqm of net absorption over 2018 and vacancy tightened to 4.1% – the lowest level since the 2000 Olympics. Low vacancy has exerted upward pressure on Sydney CBD rents. Prime gross effective rents increased by 1.1% over the quarter and by 7.1% over 2018.
JLL Head of Leasing – Australia, Tim O’Connor said, “The Sydney demand story is diverse with positive enquiry and activity from organisations in the professional services, financial services, technology sector and public sector. In 2019, the very low vacancy rate will see demand expressed through precommitment activity in new developments.”
The Melbourne CBD recorded 9,300 sqm of net absorption in 4Q18 and 167,700 sqm over 2018. The Melbourne CBD was the strongest office market in 2018 and accounted for 44.9% of national CBD office market net absorption in 2018.
Mr O’Connor said, “The Melbourne CBD had another strong year of take-up in 2018 and vacancy pushed down to 3.7% in 4Q18 – the lowest level since the late 1980s. The completion of new developments over 2019 and 2020 will only provide limited opportunity for organisations seeking space as over 60% of this space has been pre-committed.”
The tight conditions in the Melbourne CBD are evident in the Melbourne metro office markets. The Melbourne Fringe vacancy rate is 5.5%, while the Melbourne suburban office market vacancy rate is sitting at 7.5%.
The Brisbane CBD recorded 7,400 sqm of net absorption in 4Q18 and 27,700 sqm over 2018. While the headline vacancy rate compressed to 13.2% over 2018, the prime to secondary vacancy rate spread widened further. Prime grade vacancy (7.2%) tightened to a six-year low, while secondary grade remained elevated at 19.7%.
Mr Ballantyne said, “The public sector remains in expansion mode in the Brisbane CBD, but we are starting to see more activity from private sector organisations. The number of genuine options in prime grade space are starting to reduce and effective rents are moving higher.”
Canberra recorded net absorption of 47,000 sqm in 2018 and vacancy tightened to 10.9%. The 2018 net absorption figure was the strongest annual result since 2012.
Mr Ballantyne said, “Public sector leasing enquiry will slow over the first half of 2019 with a Federal election having to take place by May. The Commonwealth of Australia will go into caretaker mode either side of the election and leasing enquiry will not start to recover until the latter part of 2019.”
The Adelaide CBD recorded positive net absorption of 11,700 sqm over 2018 and a reduction in vacancy to 13.7%. Improved sentiment with the expansion of the defence sector has led to some modest upward pressure in rent with prime gross effective rents increasing by 2.5% over 2018.
Mr O’Connor said, “Prime grade vacancy rates are in single digit territory across most CBD and metro office markets. While the uncertain economic and political environment will create a level of caution, we believe that tight physical market conditions will precipitate a wave of pre-commitment activity to new development over 2019.”