Demand for office spikes across the country as CBD markets tighten

Demand for office space of all shapes and sizes has spiked across the country in the last quarter on the back of a surprise Federal election result and the continued tightening of CBD markets.

According to Colliers International’s latest Office Demand Index, demand for office space increased 8% nationally – to 679,583sqm – from Q1 2019 to Q2 2019.

Demand has increased in most major office markets across Australia in the second quarter, with the exception of Melbourne and Adelaide which remained relatively stable. 

In Sydney, Colliers International recorded 269,392sqm of demand recorded in Q2 2019, a 28% increase compared to Q1 2019. In Melbourne there was 196,083sqm of demand recorded in Q2 2019, a slight 1% decrease in demand compared to Q1 2019.

“Sydney has witnessed an increase in demand for office space of all sizes, including an 18% increase in demand for space greater than 3,000sqm,” Simon Hunt, Colliers International Managing Director of Office Leasing, said. “Demand in Melbourne for the first half of 2019 has been stable when comparing quarter-on-quarter; with more demand recorded for the mid-sized segment than prior quarter – a 13% increase.”

There was 88,645sqm of demand recorded in Brisbane in Q2 201, a 61% increase on Q1 2019. Notably, Brisbane has seen an additional 27,000sqm of demand for space above 3,000sqm since the beginning of the year. 

Canberra saw a sharp 177% increase in demand from Q1 2019 to Q2, with 32,500sqm of demand recorded in Q2. 

“By area, the Government sector has been responsible for the greatest sqm amount of office space enquired for to date, however this comes with no surprise due to the Federal Election that occured during Q2,” Mr Hunt said. “Interestingly, in Q2 2018 there was no demand for space over 3,000sqm in Canberra compared to Q2 2019 where there has been 25,000sqm of demand recorded. 

“In terms of average enquiry size, Canberra has seen the biggest increase mainly due to the large amount of enquiries for space over 3,000sqm from the Government sector, which is partly to do with the Federal Election.”

Iain Davidson, Government Property Services Advisor at Colliers International, said due to the cyclical nature of the Canberra market and a raft of leases that were negotiated between 2007-2009, Colliers was now seeing many of these leases coming up for expiry and this has in part driven the larger than normal enquiry. 

“These Commonwealth requirements have ranged from 5,000 sqm up to 65,000sqm for new and existing buildings, all of which have come to the market in the past six months,” Mr Davidson said. “Due to the re-election of the coalition Government, the Whole of Government property strategy implementation continues to be in full swing with Departments approaching the market for new leases, consolidating into more efficient space to drive down occupational densities, or in some cases growing due to post election machinery of Government announcements.

“It is envisaged that a further 70,000sqm - 80,000sqm will come to the market in the coming 12-months. For the Commonwealth Government , it is all about looking for the best value solution from both a quality and efficiency in size point of view.”

Perth recorded 49,573sqm of demand in Q2 2019, a 4% increase on Q1 2019. Perth witnessed a staggering 146% increase in demand for space over 3,000sqm in Q2 2019 compared to Q1 2019, equating to an additional 10,100sqm.

In Adelaide, Colliers International recorded 61,390sqm of demand in the second quarter, a slight 4% decrease year-on-year. However, Adelaide experienced a 30% increase in demand for office space above 3,000sqm when comparing Q2 2018 to Q2 2019.

Nationally, Colliers International enquiry data has found the 1,000-2,999sqm office market continues to be the sweet spot in 2019.

“Demand for workspace between 1,000 to 2,999sqm has increased by 38% on area and 36% on the number of enquiries year to date,” Mr Hunt said. “The larger segment, of space 3,000sqm and above, has seen a decline and the smaller segment has seen a slight increase on prior year – 7% on area and 2% on number of enquiries.

“We believe that this is due to the tightening market conditions in all CBD locations and due to the fact that last year much of the demand was for space over 3,000sqm, compared to this year when  businesses are showing more of an interest for office space in the mid-segment.”

The high level of demand for office space nationally has translated to a total of 368 deals for almost 265,000sqm of office space in 2019 to date. This is slightly down on the prior year on the back of several larger deals in Canberra and Melbourne CBD in 2018.
The report found there had been increased demand for metropolitan locations such as Brisbane Metro, Melbourne Metro, North Sydney and Canberra due to tightening market conditions in all CBD locations.

“The major CBD locations are still experiencing strong interest due to their appeal to staffing talent and ease of access from a transport perspective,” Joe Ward Colliers International Director of Tenant Advisory, said. “However, there is renewed interest in metropolitan markets especially for larger users focused on cost.”

“Public transport improvements have also been a strong factor in the consideration of these locations. In Melbourne, our tenants are increasing interested in the eastern metro locations with new development such as Mulgrave. Canberra and Newcastle are seeing new development activity with demand being enhanced from new requirements in the education and government sectors.”

Nick Davies, Colliers International Associate Director of Tenant Advisory, said the Brisbane Metro region, particularly Fortitude Valley, had gone from strength to strength over the last 18 months, with several major projects making it a valid alternative to the CBD. 

Download the Q2 Office Demand Report today.

Please note, at the time of writing (July 2019) all figures and market data was accurate.

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Iain Davidson

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Iain has delivered more than 133,000sqm worth of Commonwealth property projects and lease transactions in the past 5 years on both the Tenant side and the Landlord side.

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Nick Davies

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