Melbourne's CBD woes lead to a blowout in national office vacancies

Melbourne's CBD woes lead to a blowout in national office vacancies

A record slump in demand for office space in Melbourne's CBD and continued weakness in Sydney have led the national office vacancy rate blowing out further to 11.9 per cent over the past six months.

The country's largest office markets were the only ones to record an increase in vacancies, according to the Property Council of Australia, with Perth and Canberra showing the biggest improvements.

The latest Australian aggregate vacancy rate for all office markets is up from 11.6 per cent at the end of January this year.

A breakdown of the figures shows the overall CBD vacancy rate rose from 11.1 per cent to 11.2 per cent, while the non-CBD market vacancy was up from 13 per cent to 13.6 per cent.

Net absorption over the period went into negative territory with an 11,742sqm increase in available space nationally. This compares with an historical average of 147,051sqm being taken up over six months.

Melbourne skewed the figures after taking the biggest hit, with net absorption of minus 96,635sqm in the CBD market.

"Demand for space in the Melbourne CBD dropped by more than twice as much as its previous largest six-monthly fall on record," says Property Council of Australia CEO Ken Morrison.

"Excluding Melbourne, demand for CBD office space grew by 85,000sqm over the six months, a result that few would have predicted given the impacts of the pandemic.

"While Sydney was the only other CBD market to experience an increase in vacancy, this was the result of a significant amount of new office space coming online - demand actually grew by 27,000sqm."

Vacancies across the CBD markets surveyed by the Property Council show that Melbourne's vacancy rate jumped to 10.4 per cent from 8.4 per cent, while Sydney's rose to 9.2 per cent from 8.5 per cent.

Improvements were recorded in Brisbane at 13.5 per cent (from 13.6 per cent previously), Adelaide at 15.7 per cent (from 16 per cent), Perth at 16.8 per cent (from 19.9 per cent) and Canberra at 7.7 per cent (from 10.1 per cent).

"Vacancy results in non-CBD markets showed a broader spread, with half increasing and half declining," says Morrison. "In aggregate, demand for office space in non-CBD markets was flat."

Melbourne's CBD could face more challenges in the current period with an estimated 220,000sqm of new supply coming online over the next six months. That's part of an expected 401,605sqm to be added to CBD markets nationally in the second half of this year. This is more than 1.5 times the historical average of 238,915sqm.

Melbourne accounts for 55 of this total with Perth at 14 per cent, Canberra and Brisbane at 11 per cent each and Sydney at 9 per cent.

Despite the issues confronting Melbourne's CBD, Morrison says Australia's office markets have shown 'remarkable resilience'. He also concedes that 'challenges remain'.

"Lockdowns continue and the impacts of the pandemic are still working through the economy, so CBD recovery needs to be a priority for governments at all levels," he says.

"It is a CBD's commercial strength that underpins its role as premier cultural, dining, entertainment, retail and tourism precincts for the broader population. It's a future we all have a stake in."

The Property Council's office vacancies are calculated on existing leases in place for office space, and not whether a tenant's employees are occupying the space or working from home.

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