Net absorption across CBD office markets reach their highest levels since 2007: JLL

Quarterly net absorption across CBD office markets has hit the highest level since Q4 2007, according to recent findings from JLL Research.

JLL Research's Q3 2018 statistics on national office markets showed positive net absorption of 151,200 square metre over the quarter and 258,600 square metres over the 12 months to September 2018.

The national CBD office market vacancy rate compressed 9.1% in Q3 2018 a reduction of 1.8 percentage points over the year to September 2018.

“Labour force surveys show that corporate Australia is increasing headcount which has translated into positive leasing enquiry and activity,” stated JLL Head of Research, Australia, Andrew Ballantyne. 

"While Melbourne continues to be the standout performer, the leasing market upturn is more diverse with above trend net absorption in Canberra, Adelaide, Brisbane and Perth.”

The Melbourne CBD recorded 79,900 square metres of net absorption in Q3 2018 and 187,800 square metres over the 12 months to September 2018.

The Melbourne CBD vacancy rate tightened from 4.6% in Q2 2018 to 4.0% in Q3 2018 – the lowest level since Q2 2008.

Melbourne CBD prime gross effective rents increased by 1.1% over Q3 2018 and by 8.7% over the 12 months to September 2018.

“The Melbourne CBD office leasing market juggernaut continues to roll on. Melbourne is one of the world’s strongest performing cities and we continue to see a diverse range of industry sectors expanding their occupational footprint in the Melbourne CBD," JLL Head of Office Leasing, Australia, Tim O’Connor said.

“The Melbourne result was even more impressive as it included the relocation of the Victorian WorkCover Authority to a new premise in Geelong.

“The Melbourne CBD development pipeline will deliver new product over the next two years with 2020 expected to be the largest year for completions since 1991. However, the strength of the demand-side of the equation has led to a downward revision in the vacancy rate. We project 2020 vacancy will be in the 6% territory – well below equilibrium of 7% to 9% for the Melbourne CBD."

JLL Research found that the Sydney CBD recorded 8,800 square metres of net absorption over the 12 months to September 2018 and vacancy was 4.7%. Low vacancy continues to exert upward pressure on Sydney CBD rents. Prime gross effective rents increased by 0.8% over the quarter and by 10.1% over the 12 months to September 2018.

“Co-working operators are really ramping up their presence in the Sydney CBD. Two more WeWork facilities opened in Q3 and we are speaking with a number ofpotential new co-working operators. One of the challenges for new entrants is the lack of contiguous space in the Sydney CBD,” O’Connor said. 

The Brisbane CBD recorded 15,400 square metres of net absorption in Q3 2018 and vacancy tightened to 13.9%. Over the past 12 months, net absorption in the Brisbane CBD has totaled 39,600 square metres – 29% above the 40-year average of 30,600 square metres.

“The Brisbane CBD leasing market recovery is starting to gather momentum with prime grade vacancy (8.2%) tightening to the lowest level since Q412. The next phase of the Brisbane recovery will see a reduction in leasing incentives and an improvement in prime effective rents,” Ballantyne said.

The Perth CBD recorded net absorption of 17,600 square metres in Q3 2018 and 34,000 square metres over the 12 months to September 2018. Vacancy remains elevated (22.0%), but the spread between prime (18.0%) and secondary (28.1%) grade vacancy remains wide.

The Adelaide CBD recorded positive net absorption of 14,700 square metres in Q3 2018 and 23,200 square metres over the 12 months to September 2018. The quarterly net absorption in Adelaide was the strongest since Q408. Vacancy tightened to 13.7% with prime grade vacancy moving back into single digit territory (8.3%) in Q3 2018.

Ballantyne said defence, resources and professional services are growth sectors of the Adelaide CBD office market. The expansion of the defence sector and competition for skilled labour has led to organisations shifting operations into the CBD. BAE Systems moved into the CBD from Edinburgh Parks in Q3.

Canberra recorded net absorption of 35,700 square metres in Q3 and vacancy tightened to 11.6%. Low vacancy in the prime grade sector (6.2%) has resulted in rental growth with prime gross effective rents increasing by 3.7% over the 12 months to September 2018.

Ballantyne concluded by noting Brisbane, Perth and Adelaide will be the office markets to watch closely in 2019. Leasing enquiry and activity is positive, prime grade vacancy has tightened in Brisbane and Adelaide and we expect owners will start winding back incentives to a level more associated with current vacancy rates.