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News release


2013 – A challenging year for the office leasing market

However, signs of stabilisation were recorded in the Sydney CBD and Melbourne CBD office markets

​AUSTRALIA, 22 January 2014 – Statistics released by Jones Lang LaSalle Research highlight the nervousness of corporate Australia over 2013. Jones Lang LaSalle recorded negative net absorption of -242,500 sqm across CBD office markets in 2013. As a result, the national CBD office market vacancy rate increased to 11.8%.

Jones Lang LaSalle’s Head of Office Leasing, NSW & Australia, Tim O’Connor said “It is too simplistic to say the leasing market was challenging in 2013. The sub 500 sqm cohort of the market was active, while a number of large pre-commitments were finalised.”

“Furthermore, we noted a divergence between prime and secondary vacancy rates in 2013 – a number of occupiers capitalised on the availability of good quality office accommodation to relocate to better premises,” said Mr O’Connor. 

Despite the negative net absorption figure and rise in vacancy, we saw signs of stabilisation in the Sydney and Melbourne CBD office markets. Vacancy actually tightened in Sydney (10.5%) over Q4, while Melbourne only recorded a moderate rise in vacancy to 11.0%. 

Adelaide recorded negative net absorption of 11,500 sqm and a rise in vacancy to 13.9% in 2013. Canberra was the only market to record positive net absorption (10,700 sqm) in 2013, however vacancy still moved out to 11.9% in Q4. 

The Brisbane CBD (-105,800 sqm) and Perth CBD (-84,400 sqm) recorded weak net absorption results over 2013. Overall, these two markets were responsible for 78% of the negative net absorption recorded across CBD office markets in 2013. 

Negative net absorption in both markets led to an increase in the vacancy rate. The Brisbane CBD vacancy rate moved out to 15.4% in 2013, while Perth (10.8%) moved into double digit territory. 

Mr O’Connor said, “The resource sector has moved from the investment to production phase of the current cycle in 2013. This has had a major impact on Brisbane and Perth as resource and resource-related sectors have downsized, releasing excess space to the market.”

The downsizing of the resource sector was reflected in higher sub-lease availability. In 2013, sub-lease availability across CBD office markets increased by 138,400 sqm to 342,600 sqm of space. Sub-lease availability now represents 2.05% of total stock. 

Sub-lease availability is significantly higher in Perth (4.89% of stock) and Brisbane (3.12% of stock), than Melbourne (1.57% of stock) and Sydney (1.48% of stock).
Mr O’Connor said, “The rise in sub-lease availability slowed over the latter part of 2013. Sub-lease is a volatile indicator and is correlated with business confidence. The slight improvement in business confidence post the Federal Election supports a reduction in sub-lease availability over 2014.”

Jones Lang LaSalle’s Head of Capital Market Research, Andrew Ballantyne said, “The domestic economy is in the process of transitioning from investment led growth in the mining sector to more broad based domestic consumption and investment drivers.”

“Accommodative monetary policy is supporting non-mining sectors of the economy and stimulating residential construction activity. The residential sector has historically led economic recoveries in Australia.”

“Increased activity flows through to improved household confidence and spending and increased demand for household credit and insurance-related financial services products. The Sydney and Melbourne office markets will be the main beneficiaries of this transition,” said Mr Ballantyne.

Mr O’Connor said, “While our forecasts show demand will be below trend in 2014, the national CBD office market vacancy rate is expected to tighten moderately over 2014.”

“Completions will be low in 2014. Furthermore, the higher vacancy rate and the flight to quality will put pressure on secondary grade assets. Some assets will be withdrawn for refurbishment, but we will also see the conversion of secondary office stock to a residential use,” concluded Mr O’Connor. 

Across CBD office markets, Jones Lang LaSalle forecast that supply additions in 2014 will be the lowest since 2002.