Organisations are gravitating towards space in higher quality office buildings

AUSTRALIA, 20 April 2023 – JLL Research has released 1Q23 statistics on national office markets. The figures showed positive net absorption of 43,400 sqm was recorded across CBD office markets in Q1 and 124,200 sqm over the 12 months to March 2023.

The national CBD office market vacancy rate was unchanged over the March quarter at 14.3%.

JLL Head of Research – Australasia, Andrew Ballantyne said, “Australia’s office markets have proven to be more resilient than other mature economies. While several organisations are operating in a more flexible manner, headcount growth has translated into positive net absorption.”

“Part of Australia’s resilience has been our return to office numbers are more comparable to what we see across Asia Pacific as opposed to North America and Western Europe. Our cities are becoming more vibrant with a mix of visitors, residents, and workers,” said Mr Ballantyne

JLL Head of Office Leasing – Australia, Tim O’Connor said, “If you only sourced your insights on office leasing markets from social media, you would be forgiven for believing we are experiencing transformational change. The reality is the office sector is constantly evolving to meet stakeholder requirements, with owners seeking to improve the experience / amenity of their assets and organisations designing workplaces to support connectivity, collaboration and socialisation.”

The Sydney CBD recorded positive net absorption of 3,900 sqm in 1Q23. While the headline vacancy rate is elevated at 13.7%, limited options for contiguous space in the Core exist and we are seeing upward pressure on market rents.

Mr O’Connor said, “Sydney CBD leasing enquiry remains positive with occupiers seeking space in amenity rich assets. SMEs are very active, while larger organisations requiring offshore approval can elongate the decision-making process. Owners that have invested in their asset to meet occupier requirements have been able to push market rents higher.”

In the Sydney CBD, prime gross effective rents increased by 5.2% over the 12 months to March 2023.

The Perth CBD has proven to be one of the most resilient office markets and recorded the strongest net absorption result in 1Q23 (+27,200 sqm). Over the past 12 months, the Perth CBD has recorded 50,500 sqm of net absorption.

Mr O’Connor said, “A diverse range of industry sectors are in expansion mode and contributing to positive sentiment in the Perth CBD. High quality fitted space is receiving strong interest, while we estimate that one-third of Perth’s vacancy is structural and will be very challenging to lease without significant capital expenditure.”

The Brisbane CBD is also performing strongly recording 7,700 sqm of net absorption over Q1 and 65,300 sqm over the 12 months to March 2023.

Mr O’Connor said, “The public sector (Federal and State) has several active requirements in Brisbane, while a number of larger private sector organisations will finalise accommodation decisions in 2023.”

The Adelaide CBD recorded positive net absorption of 5,800 sqm in 1Q23. While Adelaide’s headline vacancy remains elevated at 16.1%, occupiers are gravitating to higher quality assets and prime gross effective rents increased by 5.0% over the 12 months to 1Q23.

Mr Ballantyne said, “Adelaide is exposed to growth sectors of the economy – health, defence and technology. The Adelaide CBD has a high level of amenity, and we are seeing several organisations centralise operations to the CBD from suburban markets to attract and retain knowledge workers.”

The Melbourne CBD net absorption result was essentially flat in 1Q23 (+100 sqm). However, organisations are favouring higher quality assets with prime net absorption of 29,000 sqm, offset by a reduction in demand for secondary grade stock (-28,900 sqm).

Canberra was the only monitored CBD office market to record negative net absorption in 1Q23 (-1,300 sqm). However, Canberra’s vacancy rate remains lower than other CBD office markets at 7.8% in 1Q23.

Mr O’Connor said, “The global economic slowdown has the potential to impact office market sentiment in 2023. However, we are encouraged that domestic organisations are looking through the cycle and still willing to make longer-term real estate decisions.”

“We are watching the supply-side of the equation very closely. Higher construction costs and uncertainty around cap rate assumptions are exerting upward pressure on economic rents. As a result, we have revised down our supply assumptions across most office markets over 2025 and 2026,” concluded Mr O’Connor.

^{Source: JLL Research}