New office space will be a “wild card” for investors as more than 5.1 per cent of total stock is about to be added to the market.
Across Australia 1.41 million sq m of office space is under construction, according to the latest JLL Office Investment Review and Outlook report.
The impact of new stock will be most felt in Parramatta with an additional 22.1 per cent of space added to the market, the Melbourne fringe will have 14.1 per cent added and the near Brisbane city area will gain 7.4 per cent.
JLL head of research Andrew Ballantyne said beyond 2021 they expected a reduction in new office supply.
“We think the wild card to watch will be what happens in the supply of new office stock,” Ballantyne said.
“We have lowered our medium-term supply profile for a number of office markets over the 2021 to 2024 period.
“Net supply expectations could be further wound back if stock withdrawals move back towards the levels recorded in the early 1990s recession, post-2000 slowdown and financial crisis.”
Australian office market supply forecast
^Source: JLL Research, Office Investment Review & Outlook, Forecast 2021-2024
The majority of new development activity was pre-commitment-led with most CBDs seeing supply addition drop.
Ballentyne said investors were instead looking to reposition older commercial office buildings.
“A big opportunity we see for owners in 2021 will be the repositioning of older and lower-quality office assets as tenants seek office space with the latest health and safety features,” Ballantyne said.
“An opportunity exists to allocate capital expenditure to reposition these assets at an affordable rental profile relative to modern prime-grade assets.”
According to the Property Council of Australia’s vacancy report the negative trend in demand needs to be turned around to support this new space.