Australian offices see strongest uptake since 2018

Over the last month, the national central business district (CBD) market vacancy rate contracted by 0.3 percentage points to register as 15.1 per cent at the end of September 2024.

Reflecting on this uptake in office activity, JLL head of research-Australasia, Andrew Ballantyne, said: “Several organisations have attempted to rationalise their office footprint at the same time as their employees are increasing their office attendance.”

“The old analogy of ‘a church is built for Sunday’ is relevant in the office sector as an organisation must plan and design their workplace for peak utilisation days,” he added.

The firm partly attributed the strong net absorption result of Q3 2024 to a sharp reduction in sublease availability, noting that sublease availability in CBD office markets has reduced by 84,000 square metres over the calendar year.

Although Australia’s economy has slowed in 2024, which Ballantyne said would typically lead to increased sublease availability, he described the current reduction in availability as pointing to greater office space utilisation, with organisations needing additional space to meet workforce demands.

This demand for quality office space has persisted over the year, with prime grade net absorption hitting 83,300 square metres over Q3 2024, and secondary absorption reaching 8,600 square metres over the period.

Over the calendar year to date, prime net absorption across CBD office markets has accumulated to a total of 159,600 square metres.

JLL head of office leasing-Australia, Tim O’Connor, noted that although real estate generally ranks lower in cost compared to key fixed expenses such as people and technology, “a well-designed workplace can play an important role in the attraction and retention of knowledge workers”.

O’Connor also emphasised that “the quality story is not simply a prime versus secondary discussion”, explaining that “the secondary grade market is not homogenous and those well-located assets with a diverse range of amenities are receiving strong tenant enquiry”.

State office markets run at different speeds

The Sydney CBD reported net absorption of 53,600 square metres in Q3 2024, bringing total office take-up to 69,200 square metres over the 12 months leading up to September 2024.

Sublease availability in the Sydney CBD was observed to have sharply declined to 92,500 square metres, marking the lowest level recorded since the second quarter of 2020.

O’Connor was optimistic about the city’s future prospects, highlighting that the recent opening of the Sydney Metro City and Southwest has connected the city’s CBD and North Shore areas to Sydney’s North West growth corridor.

“We’ve had positive discussions with several organisations about how this world-class piece of infrastructure will shape the travel patterns of their workforce,” he said.

Despite the Melbourne CBD recording negative net absorption of -8,500 square metres over Q3, O’Connor predicted that the city will “follow a similar recovery trajectory to Sydney”.

“Occupier demand for well-located prime grade assets is stronger, sublease availability is trending lower, while Victoria has positive population growth – a key explanatory variable for office sector demand.”

Perth’s CBD recorded net absorption of 2,900 square metres over Q3, bringing the calendar result so far to 13,600 square metres.

Ballantyne highlighted that China’s recently announced measures to “stimulate consumer spending and revitalise the real estate sector” could serve as a potential boon for Western Australia.

“Western Australia is highly sensitive to the resource sector and we expect to see increased leasing enquiry for mining and resource-related organisations,” Ballantyne said.

The Adelaide CBD reported net absorption of 20,400 square metres over Q3, contributing to a total of 37,700 square metres over the 12 months to September 2024.

In addition to South Australia’s robust population growth and exposure to key economic growth sectors, O’Connor said that Adelaide’s CBD office market has remained one of the most resilient office markets, with occupied stock currently registering 7.1 per cent above the 2019 level.

Over in the ACT, Canberra recorded a solid net absorption of 24,900 square metres, and reduction in vacancy to 8.2 per cent in Q3.

In Queensland, the Brisbane CBD reported a flat net absorption result of -1,300 square metres in Q3.

The city’s headline office vacancy currently stands at 10.5 per cent, with prime grade vacancy decreasing to 8.3 per cent over the last quarter, marking the lowest levels since the third quarter of 2019.

Weighing in on the sharp reduction in sublease availability which has occurred while “costs are being closely monitored”, O’Connor interpreted the data as “a sign that some organisations believe they went too far with space rationalisation plans”.

“We expect that organisations will be cautious in growing headcount in the short term, but longer term employment growth will be the key variable in understanding office sector demand.”

Nonetheless, O’Connor highlighted that the significant increase in the cost of production over the past 36 months will “limit new development activity”.

“While headline vacancy rates remain above equilibrium in most markets, tenant options in high quality buildings with strong sustainability credentials are diminishing,” he said.