CBD office markets shrug off the lockdown blues

13 October 2021

JLL Research has released 3Q 2021 statistics on national office markets. The figures showed positive net absorption of 70,100 sqm was recorded over 3Q21 – the strongest quarterly result since 4Q 2018. Five of the six monitored CBD office markets recorded positive net absorption in Q3.

The national CBD office market vacancy rate remained at 14.0% in 3Q21.

JLL Head of Research – Australia, Andrew Ballantyne said, “Business confidence held up during the most recent lockdown, while labour market surveys showed the majority of organisations were seeking to increase headcount.”

The silver lining of the latest lockdown in NSW, VIC and ACT is an acceleration of the vaccination rollout across Australia. We will have one the highest vaccinations in the world at the end of 2021 and organisations are more confident in making long-term office leasing decisions,” said Mr Ballantyne.

The Sydney CBD recorded 24,700 sqm of net absorption over the quarter – the strongest quarterly result since 4Q18. As a result, the Sydney CBD vacancy rate fell by 0.2 percentage points to 13.0% in 3Q21.

JLL Head of Office Leasing – Australia, Tim O’Connor said, “A number of industry sectors are in expansion mode and contributing to the Sydney CBD demand recovery story. The common theme is organisations growing tech-related headcount to improve business processes or evolve their service offering for customers.”

“There is a view that all organisations are taking less office space upon relocation. However, actual leasing evidence shows that most organisations are growing headcount and this is translating into a larger occupational footprint. Furthermore, we also saw a number of organisations withdraw sublease space, as they understand the important role workplace plays in generating collaboration and learning through osmosis,” said Mr O’Connor.

The demand recovery in the Sydney CBD was replicated across metropolitan office markets with Parramatta (+45,800 sqm), North Sydney (+9,700 sqm), Sydney South (+12,300 sqm) and Macquarie Park (+5,000 sqm) all recording positive net absorption over 3Q21.

The Melbourne CBD recorded positive net absorption of 24,100 sqm in 3Q21. However, the vacancy rate increased to 15.0% as a new development completed with limited pre-commitment and backfill space became available.

Mr O’Connor said, “Despite the positive net absorption result in Q3, leasing market sentiment remains challenging in the Melbourne CBD. However, the lifting of restrictions on leasing inspections has started to improve activity and we expect enquiry levels will increase over the latter part of 2021 and into 2022.”

The Adelaide CBD recorded 7,900 sqm of positive net absorption in 3Q21. The headline vacancy rate compressed to 16.4% over the quarter. However, most of the leasing activity was concentrated in better quality assets and prime grade vacancy tightened to 12.4% in 3Q21.

Mr Ballantyne said, “The Adelaide CBD office market demand recovery has flown under the radar. However, multiple industry sectors are in expansion mode with strong leasing enquiry coming through from tech firms, cyber security related organisations and defence related technology businesses.”

Canberra recorded 11,100 sqm of net absorption and a reduction in vacancy to 6.5% over 3Q21. The prime grade vacancy rate fell to 3.6% over the quarter and is below the 4.0% mark for the first time since 2008.

Mr Ballantyne said, “Canberra has one of the lowest office market vacancy rates in the world. While public sector activity sets sentiment in Canberra, we are seeing strong leasing enquiry from private sector organisations in the 300 to 500 sqm size cohort.”

The Brisbane CBD recorded net absorption of 2,500 sqm over the quarter. As a result, the headline vacancy rate had a marginal contraction to 15.8%.

The Perth CBD had a zero net absorption result and was the only one of the monitored CBD office markets not to record positive net absorption in 3Q21. However, the withdrawal of office stock for refurbishment led to the Perth CBD vacancy rate declining to 19.1% over the quarter.

Mr O’Connor said, “The demand-side of the office leasing market equation is complex. While some organisations may reduce their occupational footprint as they work in a more flexible manner, the most important factor for office sector demand is headcount growth.”

“We are seeing strong hiring intentions across a diverse range of industry sectors including technology, professional services, financial services, healthcare and the public sector. GDP expectations for the Australian economy are being revised higher for 2022, supporting employment growth and the demand for office space over the next 18 months,” concluded Mr O’Connor.

Australian CBD Office Markets Net Absorption

Australian CBD Office Markets Net Absorption

Source: JLL Research

Australian CBD Office Markets, Vacancy Rate by Grade

Source: JLL Research