DESPITE heavy lockdowns in the major markets that kept occupancy rates at near-zero, positive office net leasing absorption was recorded in Sydney and Melbourne, helping the national market post its best result in almost three years.
The latest data from JLL showed five of the six monitored market posted positive net absorption in the period, while the national office market vacancy rate remained at 14.0%.
The absorption rate of 70,100 sqm in the September quarter was the best result in almost three years.
This came despite the lockdowns in Sydney and Melbourne pulling occupancy rates further down to 4% and 6% respectively during September.
Sydney’s CBD recorded 24,700 sqm of net absorption over the quarter – the strongest quarterly result since 4Q18, and the vacancy rate fell by 0.2 percentage points to 13.0% as a result.
The demand recovery in the Sydney CBD was replicated across metropolitan office markets with Parramatta (45,800 sqm), North Sydney (9,700 sqm), Sydney South (12,300 sqm) and Macquarie Park (5,000 sqm) all recording positive results.
JLL’s head of office leasing – Australia, Tim O’Connor said a common theme is organisations growing tech-related headcount to improve business processes or evolve their service offering for customers.
“There is a view that all organisations are taking less office space upon relocation. However, actual leasing evidence shows that most organisations are growing headcount and this is translating into a larger occupational footprint.”
“Furthermore, we also saw a number of organisations withdraw sublease space, as they understand the important role workplace plays in generating collaboration and learning through osmosis.”
The Melbourne CBD recorded positive net absorption of 24,100 sqm, however, the vacancy rate increased to 15.0% as a new development completed with limited pre-commitment and backfill space became available. According to BIS Oxford Economics, supply additions are “far and away” the driving force behind fast-growing vacancy rates in the Sydney and Melbourne CBD office markets.
O’Connor said leasing market sentiment remains challenging in the Melbourne CBD, but the lifting of restrictions on leasing inspections has started to improve activity.
JLL head of research – Australia, Andrew Ballantyne, said business confidence held up during the most recent lockdown, while labour market surveys showed the majority of organisations were seeking to increase headcount.
“The demand-side of the office leasing market equation is complex. While some organisations may reduce their occupational footprint as they work in a more flexible manner, the most important factor for office sector demand is headcount growth.
“We are seeing strong hiring intentions across a diverse range of industry sectors including technology, professional services, financial services, healthcare and the public sector. GDP expectations for the Australian economy are being revised higher for 2022, supporting employment growth and the demand for office space over the next 18 months.
“The silver lining of the latest lockdown in NSW, Victoria and ACT is an acceleration of the vaccination rollout across Australia. We will have one the highest vaccinations in the world at the end of 2021 and organisations are more confident in making long-term office leasing decisions.”
Canberra recorded 11,100 sqm of net absorption and a reduction in vacancy to 6.5% over 3Q21, while the prime grade vacancy sharpened to 3.6% and is below the 4.0% mark for the first time since 2008.
“Canberra has one of the lowest office market vacancy rates in the world. While public sector activity sets sentiment in Canberra, we are seeing strong leasing enquiry from private sector organisations in the 300 to 500 sqm size cohort,” Ballantyne said.
Its tight vacancies and heavy government presence amongst its tenants has made Canberra’s office market a favourite among investors in 2021.
Strong leasing enquiry from tech firms, cyber security-related organisations and defence-related technology businesses helped Adelaide’s CBD record 7,900 sqm of positive net absorption in the September quarter. The headline vacancy rate compressed to 16.4%, with most of the activity occurring in better quality assets as prime grade vacancy tightened to 12.4%.
Brisbane recorded net absorption of 2,500 sqm over the quarter in its CBD, and a marginal contraction in the headline vacancy rate to 15.8%.
Perth’s CBD had a zero net absorption result, however the withdrawal of office stock for refurbishment led to the vacancy rate declining to 19.1%.