Vacancy tightens across major metro markets across the country
Metropolitan office markets across the country are set to play a pivotal role in the long term growth of Australia’s major cities.
According to new research from Colliers International, vacancy in most of Australia’s key metropolitan office markets are on the decline, as the nation’s population continues to grow and occupiers look for alternative workplace accommodation outside major CBDs.
“The continued growth of our cities almost guarantees that metro office markets will have a growing role to play in accommodating employees in the future,” Simon Hunt, Colliers International Managing Director of Office Leasing, said.
“Our CBD markets simply are not geographically large enough and are faced with the added constraints of strong demand for residential, hotels and student accommodation sites, as well as relatively tight planning restrictions (compared to most global centres).
“Vastly improved infrastructure, such as Sydney’s Northwest and City & Southwest Metro rail project and Melbourne’s proposed $50 billion underground suburban rail loop, will further open up suburban markets to office occupiers.”
Anneke Thompson, Colliers International National Director of Research, said Australia – and its major cities – was growing at 1.6 per cent annually, experiencing some of the strongest population growth in the developed world.
“There are cities around the world that are currently growing faster, such as Las Vegas and San Antonio in the United States, however, the United Nations’ long-term outlook for population growth in the developed world is that Melbourne, Sydney and Brisbane will be the fastest growing cities from 2025 to 2030,” Ms Thompson said.
Colliers International research found vacancy rates were tightening in major metro markets across Sydney and Melbourne.
“For example, new entrants to North Sydney A Grade market has resulted in very tight vacancy of 2.2%. In a similar vein, the overall vacancy rate has declined from 7.9% to 6.3% over the six months to July 2018,” Ms Thompson said. “This is the lowest level of availability North Sydney has experienced since July 2002 and well below the 10-year average of 8.8%.
“The Chatswood office market has seen steady absorption levels in the absence of new supply. The vacancy rate has trended down from 6.8% in January to 6.5% per cent in July, making this the lowest level of vacancy in the past decade in this market and 40% below the 10-year average of 11%.”
Elsewhere across Sydney, major metro markets such as St Leonards, Macquarie Park and Parramatta – which has the lowest level of availability in the country at 3.2%, well below the long-term average of 7.3 per cent – all continue to record declines in vacancy, driven by rising net absorption, limited stock and strong leasing markets.
“Already we are seeing Australia’s Tier 1 institutions invest in Parramatta, Sydney’s nominated ‘second CBD’, with GPT, Charter Hall, Mirvac and Dexus all investing in the precinct,” Ms Thompson said. “Parramatta offers proximity to western Sydney’s workforce, good public transport links, as well as the affordability factor. Average A grade face rents are almost 40 per cent cheaper in Parramatta than in the Sydney CBD.
“In Melbourne, the City Fringe, Inner East and Outer East office markets have all recorded vacancy rates well below long term average levels,” Ms Thompson said. “As a result, we expect vacancy to rise to only long term average levels through the next supply cycle (2020 to 2022).”
Colliers International recorded more enquiries over the year to date in Melbourne’s City Fringe than for all of 2017. This market had the second lowest vacancy in the country, after Parramatta, currently sitting at 3.46%. Mr Hunt said low vacancy had been driven by tenants looking to move from outer suburban markets, and also from those tenants becoming priced out of the CBD.
Vacancy rates in Melbourne’s south-east, as well as in Adelaide’s fringe and suburban office markets, West Perth and Newcastle, had also continued to decline or level out.
“In addition to continued population growth, improving infrastructure and affordability, there are other key factors that play a role in the success of metro office markets,” Mr Hunt said. “We have noticed a key trend of industry sectors co-locating in metro precincts, which allows companies to attract talent from nearby competitors.
“Examples include the Technology, Advertising, Media and Information sectors in Sydney’s north shore and city fringe, and Melbourne’s city fringe. This sector is attracted to these locations due to great local amenity and culture, good public access, and more ‘non-corporate’ style space options being available.
“Outer metro markets continue to attract those occupiers in the wholesale and retail trade and health and community service sectors, where proximity to industrial markets as well as competitive rents are key attractors.”