The Property Council of Australia's latest Office Market Report has demonstrated a significant divergence between Australia's major office markets.
Simon Hunt, Colliers International Managing Director of Office Leasing, said the major office markets of New South Wales and Victoria continued to power ahead on the back of strong population growth, infrastructure spending and employment growth, which has resulted in decreasing vacancy at the same time as demand and occupier confidence increases.
“While the remaining major office markets have ground to make up, we believe that in the medium-to-long term they will follow suit, particularly Brisbane," Mr Hunt said.
“Demand for office space nationally has been strong in the first half of 2016. Our latest Office Demand Index recorded a total of 621,156sqm of demand in the second quarter of 2016 alone, representing a 22% increase from the first quarter.
“Nationally, our data has found the amount of space leased at June YTD 2016 was up by almost 40,000sqm, a 17% increase year-on-year compared to the same time last year.
“As our enquiry data suggests, demand for office space in four of the six major office markets nationally is on the rise – Sydney, Melbourne, Brisbane and Canberra. But it is particularly strong in Sydney, Melbourne and Canberra where we have also seen vacancy rates decrease.
“Supply is still to complete in Sydney and Melbourne, where the vast of majority of stock is committed and the next development cycle is not expected to commence until 2019/2020.
“This means vacancy is likely to continue to decrease in these three major office markets in the medium term, and we also expect to see continued effective rental growth in these markets.
“Brisbane, Perth and Adelaide are still challenging markets, but we expect they will soon reach their vacancy peaks before decreasing slowly as new supply is taken up.
“Our major CBD office markets are also benefiting from an notable lack of supply in national metropolitan office markets.
“Overall, the latest PCA figures have shown metropolitan markets decreasing in size by 67,895sqm in the first half of this year, and by over 100,000sqm over the last 12 months. This means many metropolitan tenants are beginning to look to their nearest CBD for their office accommodation, thereby driving further demand in our CBD markets.
“Many, however, still want to occupy a metropolitan location that offers their people a high standard of amenity – including retail and childcare – and strong road and public transport infrastructure.
“The lack of supply in these metropolitan markets is being driven by underlying land values and increased residential conversion fuelled by population and infrastructure growth. This residential development in turn offers metropolitan office occupiers even greater amenity.
“In Parramatta in particular we see great opportunity. Whilst this market is traditionally tightly held, with new development typically taken up by large government tenants, we believe there is a real opportunity to capitalise by speculatively building a medium-sized new development with A grade services and efficient floorplate to meet the demand from the local market.
“We believe we will see more amenity-driven metropolitan office development in the major markets of New South Wales, Victoria and Queensland in the long term.”