Sub 4% Office Vacancy: Sydney, Melbourne

“While the Australian economy has been growing more slowly, the underlying fundamentals of our office markets appear strong. Net tenant demand actually fell somewhat in Sydney and Melbourne over the past six months, but in such tight markets it is difficult for existing businesses to grow or for new businesses to find space. Through 2020 over 680,000sq m of new office space will come onto CBD markets, with 80 per cent of this in Sydney and Melbourne where we need it most. The Melbourne CBD will account for 57 per cent of the new space coming online in the CBD markets over 2020, making it our biggest expanding CBD office market in the country. Almost a quarter of the new supply for non-CBD markets over 2020 will be delivered in Parramatta and setting a new record for tenant absorption of office space in that market.”

“Melbourne’s East End had the tightest vacancy in the CBD and remains a strong preference for banking, government and professional services. The city fringe office market remains of interest for large corporations, with a number of mooted developments fighting for tenants, however we are yet to see a major CBD tenant relocate to a fringe location. BHP, Sportsbet and Origin Energy were among the companies that looked closely at relocating to Richmond last year, but ultimately all decided the CBD was still their best option given current market conditions.”

“The lack of choice in the market and increasing costs have resulted in many tenants choosing stay put in their current premises and look to increase efficiencies. The steady demand has come from a wide range of sectors with business services, IT, education and co-working being the leading lights. Melbourne’s new Silicon Valley, the Richmond [and] Cremorne markets, have consolidated further with Bunnings, Uber and Afterpay likely to join Reece, Seek, REA, Domain and MYOB to establish the area as a preferred alternative to the CBD. Effective rents achieved for these tenants has been comparable to CBD transactions. St Kilda Rd, Southbank, and Docklands markets have also delivered solid performances during 2019. It should be noted the low cost Docklands supply pipeline has ended, effectively removing the glass ceiling off CBD and other fringe market rentals.

“There were however a number of significant leasing deals, those included Deloitte who secured 32,000sq m in AMP Capital’s development Quay Quarter Tower (50 Bridge Street), WeWork at 320 Pitt Street where they will occupy 11,000sq m and Lend Lease has secured Salesforce to anchor 24 floors of its 53 floor $1.9 billion Circular Quay development. The outlook for 2020 is strong for our clients, we are forecasting 3 per cent vacancy in the Sydney CBD, we have also seen strong qualified demand in the early parts of the year and anticipate leasing deal volumes to increase.”