Strong Employment Growth Puts Pressure on Office Space in Sydney, Melbourne: JLL

Prime office vacancies in Sydney’s CBD are the lowest in a decade, with rent for office space in the city set to climb again in 2018, research by professional services firm JLL shows.

The figures revealed that the national vacancy rate shrank 1.5 per cent to 10.4 per cent over the course of 2017, ending on a strong note with 187,100 square metres of positive net absorption as Australia’s market moves into the first quarter of 2018.

Unsurprisingly, rents for office space in Sydney and Melbourne recorded the strongest results, with Melbourne’s vacancy rate sinking to 6.4 per cent, the lowest rate since early 2012. Sydney’s vacancy rate compressed to 5.1 per cent in 2017, the lowest in almost a decade.

Sydney’s office market has experienced a surge in recent months, despite an infrastructure and residential “squeeze” cutting into commercial space.

JLL head of research Andrew Ballantyne attributed the office squeeze to employment, labelling it a “key economic variable for the office sector”.

“Employment growth is a precursor for leasing enquiry and activity. In Sydney and Melbourne, multiple industry sectors are in expansionary mode.

“Corporate Australia has become more confident about the medium-term revenue outlook and this confidence has translated into strong employment growth over 2017.”

JLL head of Australian office leasing Tim O’Connor said that rents in 2018 are expected to feel the pressure, rising in response to tightening vacancy and a reduction in the number of contiguous options in existing buildings.

Melbourne rents, for example, increased by 1.7 per cent over the final quarter 2017 while Sydney experienced a 3.9 per cent increase.

[Related reading: Foreign Investors Lead Melbourne CBD Office Sales Record]

“A shortage of prime grade contiguous space in Sydney and Melbourne will see owners record high tenant retention rates and positive rent reversion in 2018,” O’Connor said.