Colliers' latest Office Demand Index recorded a 25% increase in total demand for office space nationally from Q4 2018 to 530,369sqm in Q4 2019.
“For the past three years, Australia’s office markets, particularly Sydney and Melbourne, have experienced strong demand conditions as white collar employment has soared,” Simon Hunt, Colliers Managing Director of Office Leasing, said. “In August 2016, there were circa 70,000 white collar jobs available Australia-wide. As at August 2019, there were around 103,000 white collar jobs available.
‘Conditions in the office market are at unprecedented levels, and there are multiple outlier trends that we are seeing that have not been witnessed in the past 30 years, including record high pre-commitment levels, changing workplace trends and the rise of the freelancers and flexspace.”
The Q4 2019 Office Demand Index found that while all sectors of the office market saw an increase in demand nationally at the end of 2019, smaller office space continued to be the “sweet spot”.
Colliers recorded a 12% increase in enquiries for space under 1,000sqm and a 22% increase for space between 1,000-2,999sqm (by area) when comparing 2018 to 2019 data.
“In the Sydney CBD, we saw an additional 50,000sqm of enquiry for space between 1,000- 2,999sqm in 2019 compared to 2018; and in Victoria we saw an additional 70,000sqm for this same segment, with the majority of that increase recorded in the metro regions of Melbourne,” Mr Hunt said.
According to the report, many markets recorded similar levels of enquiry in Q4 2019 as the prior year; with the exception of the Melbourne CBD where the low vacancy rate resulted in lower levels of enquiry compared to 2018.
“Vacancy within the Melbourne CBD is forecast to reach sub-3% levels, so we’re seeing a lot more renewal activity on the basis there are no new opportunities for tenants to seek out,” Mr Hunt said.
“There are limited opportunities for contiguous space in existing buildings including new developments that will come online this year, which are also almost 100% committed prior to completion. We won’t see much backfill supply come through until 2021 at the earliest.
“Brisbane enquiry was also slightly down on the prior year; due to a higher than average level of enquire in 2018 due to the resumption of the Brisbane Transit Centre and the emergence of co-working in this market.”
In Adelaide, Colliers recorded a 78% increase in enquiry for small suites (office space below 1,000sqm), while in Canberra there was a 74% increase in demand for space over 3,000sqm from the previous quarter (Q3 2019). Perth saw a 21% increase in overall enquiry from Q4 2018 to Q4 2019.
The IT and Business Services sectors recorded the greatest number of enquiries in 2019, with an average enquiry size between 500-700sqm; whilst the Government sector enquired for the most space.
“Last year saw a rise in enquiries from Government, with a number of major requirements coming to market and strong demand in the sub-10,000sqm bracket,” Nick Evans, Colliers Head of Government Property Services and Strategic Accounts, said. “This enquiry was driven by lease expiries, the establishment of the new Property Service Provider (PSP) arrangements and ongoing improvements to the way Government property is managed.
“Ongoing Commonwealth Machinery of Government (MoG) changes and expected Government programs will increase enquiry and requirements in 2020 and 2021, predominately in Canberra and other major markets such as Sydney, Melbourne and Brisbane.”
Colliers transacted a total of 953 leasing deals for more than 685,000sqm of office space nationally in 2019. The Information Technology sector was responsible for the greatest area transacted, the majority of which was in the Sydney CBD.
“We also saw almost 50,000sqm of office space transacted for the flex-space sector with approximately 18,000sqm in the Melbourne CBD, and just over 10,000sqm in Brisbane CBD,” Justin Lam, Colliers Associate Director of Tenant Advisory, said.
“Although demand remains buoyant from flexible workspace operators, deal flow and new acquisitions have certainly slowed, following a unsuccessful IPO attempt by WeWork in 2019.
“This spotlight on the sector has driven landlords to place more scrutiny on their due diligence process when evaluating suitable operators. As the sector continues to mature, and flexible work space offerings become a minimum expectation for an office building, we expect the more established brands to continue expanding across the board.”