Brisbane shines as Sydney and Melbourne office markets faces challenges

Sydney and Melbourne have emerged as the laggards of the national office market as the latest data shows vacancy rates rising nationally over the past six months, led by historically high supply.

The Property Council of Australia (PCA) has reported that vacancies have risen to 12.8 per cent from 12.6 per cent nationally in the six months to the end of July.

In comparison, Brisbane led the way with a strong absorption rate, highlighting concerns by PCA chief executive Mike Zorbas who sees Melbourne and Sydney facing serious challenges.

“Demand remains strong in four of the six capital cities captured in our detailed survey, but it has subsided across the big two, Sydney and Melbourne,” Zorbas says.

“The office market in Brisbane is particularly robust, with tenant demand outpacing available supply, decreasing the vacancy rate from 12.9 to 11.6 per cent.”

Apart from Brisbane, positive demand for office space was also recorded in Perth, Adelaide and Canberra. However, Canberra was the only other capital apart from Brisbane to record a decrease in office vacancies, with a drop from 8.9 per cent to 8.2 per cent.

Sydney’s vacancy rate edged up slightly from 11.3 per cent to 11.5 per cent, while Perth’s rose from 15.7 to 15.9 per cent and Adelaide’s from 16.1 to 17 per cent.

The office vacancy rate in Melbourne surged from from 14.1 per cent to 15 per cent.

The CBD office market nationally added an extra 190,000sqm in the six months to July, and supply is expected to increase by 227,676sqm in the second half of 2023.

“Overall, demand for CBD office space nationally is fairly stable, slightly dropping to negative territory after a year and a half of positive demand,” Zorbas says.

The PCA data shows a broader softening of conditions in non-CBD areas where the office vacancy rate nationally blew out from 15.2 to 17.3 per cent.

The PCA says vacancy rates nationally were impacted by a lift in new office supply, particularly in Sydney and Melbourne.

The report notes that national supply had exceeded the historical average in five out of the last seven half-yearly reports. The country’s biggest office markets, Sydney and Melbourne, saw supply exceed the average in three of the last seven reporting periods.

Supply is expected to remain close to the historical average for the remainder of this year across CBD markets nationally, with supply expected to exceed the average in the second half of 2024.

Non-CBD markets could be in for an even tougher time over the next year with higher-than-average supply forecast in the first half of 2024, before easing back the following year.

Zorbas says the latest half-year results show that premium and A-grade stock remains in demand, which he says reinforces the trend of businesses providing ‘attractive and enjoyable workplaces for their people’.

“These organisations recognise that maintaining a physical office presence in our cities is vital for conducting business effectively,” Zorbas says.

“We know that face-to-face teamwork supports deeper team relationships and brings about positive outcomes for organisations, the economy, and society at large.

“There have been big advances in the inclusiveness of our workplaces through flexibility in ways of working over the past decade, but we also need the balance of governments leaning in and supporting the vibrancy of our CBDs.”

In the wake of continued work-from-home arrangements among city corporates, Zorbas points out that ‘thriving CBDs’ are essential to economic prosperity.

“We need parliaments and public and private sector leaders to recognise and champion the superior relationships, organisational, economic and societal outcomes that come from face-to-face teamwork in cities and towns across our nation each and every week,” he says.