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News release


A reduction in sub-lease availability across CBD office markets

Sub-lease availability is the office market barometer of business confidence. The reduction over Q1 is the first sign that corporate Australia is moving from a consolidation to growth mode.

​AUSTRALIA, MONDAY 21 APRIL 2014 – JLL Research has released Q1 statistics on the national office markets. While the statistics showed that the national CBD office market vacancy rate remained at 11.7% in 1Q14, JLL recorded a reduction in the amount of space available for sub-lease across CBD office markets. 

In 1Q14, JLL recorded a reduction of 11,500 sqm in sub-lease availability across CBD office markets. Sub-lease availability fell in all CBD office markets with the exception of the Melbourne CBD. 

JLL’s Head of Office Leasing, NSW & Australia, Tim O’Connor said, “Sub-lease availability is one of the most sensitive commercial property indicators and provides an insight into the health of corporate Australia. We believe it is a convincing measure of business confidence as it involves decision-making about a cost item on a corporates balance sheet rather than a survey-based measure of confidence.”

“The reduction in sub-lease availability we recorded over Q1 is the first phase of a metamorphosis from a weak leasing market to a market that is in the early stages of recovery. For a company to remove sub-lease space from the market implies that it is likely to make headcount increases over the next 2-3 years,” said Mr O’Connor. 

The most notable reduction in sub-lease availability was in the Sydney CBD. Sub-lease availability fell by 10,500 sqm in Q1 to 1.27% of total stock. Sub-lease availability is now at the lowest level since 4Q12 in the Sydney CBD. 

As a result, the Sydney CBD recorded its first positive quarterly net absorption result (1,500 sqm) since 2Q12. Nevertheless, the vacancy rate in the Sydney CBD remained at 10.5% in 1Q14. 

Mr O’Connor said “The recovery in US office markets has been led by the technology sector. We are starting to see the technology sector become a larger contributor to growth in Australia. In Sydney, Symantec has leased additional space at 207 Kent Street, while a number of other technology firms have active requirements.”

The vacancy rate in the Melbourne CBD fell to 10.4% in 1Q14. Melbourne is now the tightest of the monitored CBD office markets. 

JLL’s Head of Capital Markets Research, Andrew Ballantyne said “The Melbourne CBD value proposition is encouraging another wave of tenant centralisation and supporting occupancy rates in the CBD. In 1Q14, Australia Post and Cardno both committed to space in the CBD.” 

The tenant demand environment remains challenging in the resource-dependent markets of Brisbane and Perth. Both markets recorded a further quarter of negative net absorption in Q1.
The Perth CBD recorded a seventh successive quarter of negative net absorption in 1Q14 (-18,600 sqm). The contraction in net absorption over this period has totalled -150,000 sqm. As a result, the vacancy rate in the Perth CBD moved out by 1.0 percentage point to 11.8% in Q1.

In comparison, the reduction in Brisbane was less severe over Q1 (-1,600 sqm). Nevertheless, the vacancy rate in the Brisbane CBD remains at a record high of 15.5%. 

Mr Ballantyne said, “The demand slowdown in the near-city markets of Brisbane Fringe and West Perth, which have a higher concentration of resource sector tenants than the CBD, has been more pronounced. The West Perth vacancy rate has pushed out to 13.6%, while the Brisbane Fringe is sitting at 14.3%.”

Adelaide recorded zero net absorption in Q1 and vacancy remained at 13.9%. Canberra recorded positive net absorption of 8,600 sqm and a reduction in vacancy to 11.7%.

Mr O’Connor said “The Reserve Bank of Australia recently noted that there are encouraging signs that the handover from mining-led demand growth to broader private demand is beginning. We expect the Sydney and Melbourne office markets to be the main beneficiaries of this transition over 2015 and 2016.” 

“Supply additions across CBD office markets in 2014 are expected to be at the lowest level since 2002. With a modest recovery in demand pencilled in for 2014, we expect the national vacancy rate will remain around the 11.7% figure recorded in 1Q14,” concluded Mr O’Connor. 

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