Landlords Bank On Office Uplift

The negative trend in demand needs to be turned around in order to support new commercial space coming on the market according to the Property Council of Australia’s office market report.

Despite relative “insulation” from the pandemic, all CBD markets recorded an increase in vacancy except for Canberra.

This has pushed office vacancy to its highest level in 24 years for CBD markets and the highest level in 26 years for non-CBD markets.

Decade high office supply at 544,510sq m over the past six months further hampered results with a further 652,208sq m to be added in 2021.

Despite this, major property REITS including Dexus and Centuria expect the market to change course with indicators for office demand to improving sharply on six months ago.

Australian office vacancy

^{_{^Source: PCA Australian Office Market Report, January 2021}}

Dexus research general manager Peter Studley said professional job advertisements, an indicator of corporate hiring intentions, were up 31 per cent on six months ago.

Meanwhile employment in white collar industries has grown by 2.5 per cent over the past 12 months

“After an uncertain year for office markets, an improvement in many of the key leading indicators signals a period of strengthening demand ahead,” Studley said.

“Capital flows into property are likely to remain strong during 2021 given the low interest rate thematic. ”

Centuria Office REIT fund manager Grant Nichols said the change in workplace requirements through the pandemic should boost non-CBD office markets.

“While working from home is still topical, we understand many workers want to be back in an office environment but not endure time consuming daily commutes, which compromise their work-life balance.

“Equally, many businesses, especially those affected by the pandemic, are conscious of cashflow and are actively seeking more affordable rents.

“These complementing themes highlight the desirability of decentralised office markets.”

Property Council chief executive Ken Morrison said with more office space due to come online in the CBD next year, it will be crucial for the wider economy that we reverse the current negative trend in demand.

“While it was not a surprise to see office vacancies increase in the middle of a pandemic, it is the new supply of office space that is responsible for three quarters of this impact, not reduced tenant demand,” Morrison said.

“Vibrant CBDs drive investment, growth and productivity and must be part of our national recovery planning.

“While vacancy rates for the six months to January 2021 are now the highest in some years, there is still strong interest in commercial property as evidenced in recent deals, particularly for premium CBD stock.”