Prime Australian CBD offices resilient amid rising vacancy rates

Amidst an uptick in vacancy rates across Australia’s commercial real estate landscape, prime CBD offices stand out as resilient strongholds, a trend underscored by recent reports from the Property Council of Australia (PCA) and JLL.

The latest findings reveal a notable divergence in vacancy rates between prime office spaces and older, lower grade assets. According to the PCA, CBD vacancy rates have risen nationally from 12.8 percent to 13.5 percent, while non-CBD areas also experienced a slight uptick, climbing from 17.3 percent to 17.9 percent.

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However, the vacancy rate for prime office space within CBDs paints a more favorable picture, resting at 12.9 percent compared to 14.5 percent for secondary assets. This disparity underscores the preference among tenants for modern, high-quality office environments.

Property Council chief executive Mike Zorbas said the figures reinforced tenants’ desire for higher-quality spaces. “The increase in office supply during 2021 and 2022, far surpassing the historical norm, and continued business moves towards high-grade offices explains the results we are seeing,” Zorbas said. “There is a clear divergence between older, low-quality stock and the new premium office buildings rejuvenating our cities.”

In terms of regional variations, CBD office vacancy rates witnessed increases across several major cities. Sydney saw its vacancy rate climb from 11.5 percent to 12.2 percent, while Melbourne rose from 14.9 percent to 16.4 percent. Adelaide experienced a significant jump from 17 percent to 19.3 percent, highlighting some challenges in that market.

However, Brisbane and Canberra maintained relative stability, with slight increases in vacancy rates from 11.6 percent to 11.7 percent and from 8.2 percent to 8.3 percent, respectively. Perth notably stood out with a decrease in vacancy rates, dropping from 15.9 percent to 14.9 percent, signaling strength in the Western Australian capital.

Notably, the report emphasizes that in every capital city except Sydney and Adelaide, the vacancy rate for prime office space remains lower than that of secondary assets, reinforcing the enduring demand for quality commercial properties.

“There was a genuine increase in tenant demand across multiple industry groups in addition to major new demand from the state and Commonwealth governments,” Knight Frank office leasing head for Queensland Mark McCann said. “With construction costs continuing to be a barrier for new development, we expect the longer-term trend of vacancy reduction to continue over the next 24 months, leading to further growth in face and effective rents.”

The data underscores the resilience of prime CBD offices amidst broader market fluctuations, driven by the ongoing preference for modern, well-equipped workspaces. As businesses prioritize quality and functionality, prime office spaces continue to be a stable and attractive investment option in Australia’s evolving commercial real estate landscape.

Images via The Urban Developer

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