Office market posts strongest net absorption result since 3Q 2018

AUSTRALIA, 14 October 2024 – JLL Research has released 3Q 2024 statistics on national office markets. The figures showed that positive net absorption of 91,900 sqm was recorded over 3Q24 – the strongest quarterly net absorption result since 3Q 2018.

The national CBD office market vacancy rate tightened by 0.3 percentage points to 15.1% at the end of September 2024.

JLL Head of Research – Australasia, Andrew Ballantyne said, “Several organisations have attempted to rationalise their office footprint at the same time as their employees are increasing their office attendance. The old analogy of a Church is built for Sunday is relevant in the office sector as an organisation must plan and design their workplace for peak utilisation days.”

The strong net absorption result recorded in 3Q24 is partly a sharp reduction in sublease availability. Over 2024, CBD office market sublease availability has declined by 84,000 sqm.

Mr Ballantyne said, “Australia’s economy has slowed in 2024 and a slowing economy is normally associated with increased sublease availability. However, a reduction in sublease points towards higher utilisation and organisations requiring additional office space to accommodate workforce requirements.”

The quality story remains a strong theme across the Australian office sector. Prime grade net absorption was 83,300 sqm in 3Q24, while secondary was 8,600 sqm. Over 2024, prime net absorption across CBD office markets has totalled 159,600 sqm.

JLL Head of Office Leasing – Australia, Tim O’Connor said, “For most organisations people and technology are their two main fixed costs. Real estate is a lower order cost, but a well-designed workplace can play an important role in the attraction and retention of knowledge workers.

“The quality story is not simply a prime versus secondary discussion. The secondary grade market is not homogenous and those well located assets with a diverse range of amenities are receiving strong tenant enquiry,” said Mr O’Connor.

The Sydney CBD recorded net absorption of 53,600 sqm in 3Q24 and 69,200 sqm over the 12 months to September 2024. The Sydney CBD recorded a sharp reduction in sublease availability to 92,500 sqm – the lowest level since 2Q20.

Mr O’Connor said, “The opening of the Sydney Metro City & Southwest has seamlessly connected the CBD and North Shore to Sydney’s North West growth corridor. We’ve had positive discussions with several organisations about how this world class piece of infrastructure will shape the travel patterns of their workforce.”

The Melbourne CBD recorded negative net absorption of -8,500 sqm over Q3.

Mr O’Connor said, “We believe that Melbourne will follow a similar recovery trajectory to Sydney. Occupier demand for well-located prime grade assets is stronger, sublease availability is trending lower, while Victoria has positive population growth – a key explanatory variable for office sector demand.”

The Perth CBD recorded 2,900 sqm of net absorption in Q3, taking the calendar year result to 13,600 sqm.

Mr Ballantyne said, “China’s recently announced measures to stimulate consumer spending and revitalise the real estate sector will be positive for commodity markets. Western Australia is highly sensitive to the resource sector and we expect to see increased leasing enquiry for mining and resource-related organisations.”

The Adelaide CBD recorded 20,400 sqm of net absorption over 3Q24 and 37,700 sqm over the 12 months to September 2024.

Mr O’Connor said, “South Australia is exposed to growth sectors of the economy and is recording strong population growth. The Adelaide CBD office market has been one of the most resilient office markets, with occupied stock now 7.1% above the 2019 level.”

The Brisbane CBD recorded a flat net absorption result in 3Q24 (-1,300 sqm). Brisbane’s headline vacancy rate sits at 10.5%, with prime grade vacancy tightened to 8.3% in 3Q24 – the lowest level since 3Q19.

Canberra had a strong net absorption result over the quarter (+24,900 sqm) and a reduction in vacancy to 8.2%. in 3Q24.

Mr O’Connor said, “The sharp reduction in sublease, at a time when costs are being closely monitored, is a sign that some organisations believe they went too far with space rationalisation plans. We expect that organisations will be cautious in growing headcount in the short-term, but longer-term employment growth will be the key variable in understanding office sector demand.”

“On the supply-side of the equation, the cost of production has increased significantly over the past 36 months and this will limit new development activity. While headline vacancy rates remain above equilibrium in most markets, tenant options in high quality buildings with strong sustainability credentials are diminishing,” concluded Mr O’Connor.
 

Australian CBD Office Markets, Net Absorption by Grade (1Q21 to 3Q24)

^{Source: JLL Research}