Brisbane and Perth grab the office market headlines in 2019
The Brisbane and Perth office market recoveries gathered momentum in 2019 with both markets recording above trend net absorption
AUSTRALIA, 22 January 2020 – JLL Research has released 4Q19 statistics on national office markets. The figures showed positive net absorption of 15,200 sqm over 4Q19 and 50,000 sqm over 2019 – the weakest result since 2014.
The national CBD office market vacancy rate fell by 0.3 percentage points to 8.3% over 2019.
JLL Head of Research – Australia, Andrew Ballantyne said, “Business confidence deteriorated throughout 2019 and this translated into softer net absorption across a number of markets. However, the Brisbane CBD and Perth CBD office markets transcended the year relatively unscathed and posted net absorption results well above the long-term average.
“In another sign of confidence in the Brisbane CBD office leasing market, the resource sector is in expansion mode. Over the quarter, BHP and the New Hope Group expanded their occupational footprint in the Brisbane CBD,” said Mr Ballantyne.
The Brisbane CBD recorded 28,900 sqm of net absorption in 4Q19 and 44,900 sqm over 2019 – well above the 20-year average of 27,100 sqm. The headline vacancy rate compressed by 1.5 percentage points to 11.7% in 2019.
Mr Ballantyne said, “The next phase of the Brisbane CBD office market recovery should be a moderation in leasing incentives. Prime gross effective rents increased by 3.2% over 2019 and we expect effective rental growth to be stronger in 2020 and 2021.”
The Perth CBD recorded net absorption of 5,800 sqm in 4Q19 and 28,900 sqm over 2019 – almost double the 20-year average of 14,700 sqm. Vacancy remains elevated (19.1%), but the spread between prime (13.5%) and secondary (27.8%) continues to widen reflecting stronger occupier demand for prime grade assets.
JLL Head of Leasing – Australia, Tim O’Connor said, “Perth CBD prime grade vacancy is now at the lowest level since mid-2015. Similar to the Brisbane story, the expansion of resource related firms is having a positive impact on the Perth CBD. Dampier Bunbury Natural Gas Pipeline and Mineralogy both expanded their footprint in 4Q19.”
The Melbourne CBD recorded 11,700 sqm of net absorption over the quarter and 21,500 sqm in 2019. The Melbourne CBD vacancy rate tightened to 3.4% in 4Q19 – the lowest level since 1988. Melbourne CBD rents continue to move higher with prime gross effective rents increasing by 6.5% over 2019.
Mr O’Connor said, “The Melbourne CBD has very high levels of pre-commitment for new developments scheduled to complete in 2020 and 2021. There will, however, be concerns about backfill space availability in the Western Core and pressures in the secondary grade market as vacancy is cascaded down to lower quality assets.”
The Sydney CBD was the only CBD office market to record negative net absorption in 2019 (-63,200 sqm) and vacancy increased to 5.0%.
Mr O’Connor said, “The Sydney CBD office market was impacted by a confluence of factors in 2019. The decentralisation of NSW Government departments, consolidation of Telstra and softer business confidence leading to an increase in sublease availability all contributed to the negative net absorption result for 2019.”
The Sydney metropolitan office markets had a very strong 2019. We recorded 113,800 sqm of net absorption across our nine monitored Sydney metropolitan office markets. The strongest net absorption results were recorded in Parramatta (46,900 sqm), Sydney Fringe (41,800 sqm) and North Sydney (22,500 sqm).
Mr O’Connor said, “New public transport infrastructure spending is having a positive impact on the accessibility and desirability of Sydney’s metropolitan office markets. We are only at the start of the delivery phase of these infrastructure projects and the tailwind provided from these projects will continue over the next 5-7 years.”
Strong take-up and low vacancy is translating into positive rental growth across most of Sydney’s metropolitan office markets. North Sydney (7.9%), Macquarie Park (6.6%) and Parramatta (5.3%) all recorded above trend prime gross effective rental growth in 2019.
The Adelaide CBD was a quiet achiever in 2019 with net absorption of 9,500 sqm recorded. While vacancy remains above trend (14.4%), tenant demand for prime space is firm and we recorded a 5.7% uplift in prime gross effective rents over 2019.
The Canberra office market had a stronger second half of 2019 as the Commonwealth of Australia moved out of caretaker mode following the Federal Election. We recorded 8,300 sqm of net absorption and a reduction in vacancy to 10.6% over 2019. Prime gross effective rents moved higher increasing by 4.3% over 2019.
Mr O’Connor said, “The Reserve Bank of Australia highlighted that the economy reached a gentle turning point in the latter part of 2019. Infrastructure spending and a recovery in residential house prices are positives for the domestic economy. However, geopolitical risk factors will remain on the radar of organisations and have the potential to influence long-term decision-making in 2020.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of more than 93,000 as of September 30, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.