Office vacancy rates are up across the nation but only due to levels of new supply running far above historical levels, Property Council of Australia data shows.

The rate of new stock coming into the market is overshadowing the fact that tenant demand is growing across capital city CBDs, chief executive of the Property Council Ken Morrison said. Separate research by Ray White Commercial further shows metro locations with strong levels of population growth also showing significant gains.

“The office market continues to defy dire predictions,” Mr Morrison said. “Demand is still in positive territory after nearly three years of the pandemic.”

A predicted crash in office space demand had not occurred due to healthier employment rates and the fact that organisations continued to view a city office as an essential asset for success Mr Morrison said, adding that CBD’s still “need attention”.

“While demand for space is increasing, the number of actual office workers in our city centres is well below pre-pandemic levels and threatens the ecosystem of cafes, restaurants and retailers that help make our CBDs such special places,” Mr Morrison said. “The recovery in our CBDs needs to be top of mind for governments and businesses even as we deal with elevated levels of COVID-19 in the community.”

New supply for now

The latest edition of the Property Council of Australia Office Market Report which is released twice a year found tenant demand lifted an average 0.5% in capital city CBDs in the six months to July 2022. At the same time, aggregate vacancy rates were pushed up across cities and major urban hubs by new office buildings coming online.

The influx of new office complexes increased the national vacancy rate in the office sector up by 0.8% to 12.9% in the first half of this year according to the Property Council’s report. New supply has been above historical averages in four of the last five reporting periods and is set to taper off in coming years according to the research.

Sydney for instance saw more than 100,000sqm of new stock flood the market in the six months to July, and only 21,692 sqm of absorption, leading to vacancies growing from 9.3% to 10.1%. Melbourne has suffered further from new supply with 60,000sqm added to stock levels and less than 2000sqm of take up, pushing vacancies up from 11.9% to 12.9%. This market also has the highest sublease vacancy in Australia, running at 2.6%, and is tipped to increase.

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On the flipside, Brisbane and Adelaide both recorded decreases in office vacancy – 15.4% to 14% an 14.5% to 14.2% respectively. These are the only two capital cities in which new supply has not outstripped demand so far this year.

The star performer nationally is the small suburban East Melbourne market which continues its run as having the highest occupancy office market according to data from Ray White Commercial. The Gold Coast is nipping at its heels however with the second lowest vacancy in the country – 8.1% down from 11.3% just a year ago – as the coastal area benefits from being a lifestyle mecca in one of the fastest growing regions in Australia. The national capital Canberra has the third lowest vacancy rate (8.6%) despite substantial new supply.

Parramatta in Sydney’s west is also among the country’s top five less-traditional office market locations with some of the highest demand despite a continuing influx of new supply. In the past decade around $10 billion of investment has poured into the Parramatta CBD including $2.7 billion for the emerging three-hectare Parramatta Square precinct. This precinct will eventually hold the new city council chambers, public library and a vertical campus of the University of Western Sydney, plus four towers offering 240,000 sqm of new office space and retail, and 10,000sqm of public area.

Companies and organisations to have moved some or all operations from Sydney’s CBD to the burgeoning Parramatta area in recent times include GT Insurance, the National Australia Bank and a selection of state government offices. In May this year one of the first components of Parramatta’s new CBD was unveiled with the completion of a $320 million 28-storey office tower owned by The GPT Group.

On the other side of the country, Perth CBD and West Perth have also had healthy rises in tenant demand. West Perth’s 11,449sqm of take up for instance has reduced its vacancy rate to 15.3% from a high of 22.1% experienced 18 months ago. The smaller market in Adelaide saw 7174sqm of absorption in the six months to July Ray White data shows, reducing vacancies to a three year low of 14.2%.