The economic crisis casts a shadow over Australia’s CBD office markets
JLL Research releases its Q3 national office statistics for 2020
AUSTRALIA, 13 October 2020 – The figures showed negative net absorption of -193,700 sqm was recorded over the third quarter and the national CBD office market vacancy rate increased by 2.0 percentage points from 10.2% to 12.2%.
JLL Head of Research – Australia, Andrew Ballantyne said, “The economic crisis has negatively impacted business confidence. A number of organisations are assessing headcount expectations for the next 12-18 months and releasing excess office space.
“Corporate Australia is the new landlord in town with a sharp increase in sublease availability across the Sydney CBD and Melbourne CBD. The observation in Australia is replicated across developed economies with US sublease availability surpassing the levels recorded in the financial crisis and tech wreck,” said Mr. Ballantyne.
Five of the six monitored CBD office markets recorded negative net absorption in 3Q20.
JLL Head of Leasing – Australia, Tim O’Connor said, “A number of large organisations are uncertain about their revenue and profitability outlook and are delaying decision-making. However, we are starting to see improved enquiry and deal activity across the country in the sub 500 sqm cohort of the market. This is an important first step towards improved activity in the leasing market.
“While larger occupiers are putting on hold their office space decisions based on the short term given the uncertain economic conditions, what we are seeing is decisions being made in relation to pre-commitment given the longer lead times involved. This is consistent with what we are seeing globally with deals being concluded since COVID-19 began by companies including Facebook and AIG in New York, Baker McKenzie in London and PwC in Shanghai,” said Mr. O’Connor.
The Sydney CBD recorded -94,500 sqm of net absorption over the quarter and vacancy increased to 10.2% in 3Q20. Sydney CBD sublease availability increased to ~130,000 sqm or 2.6% of total stock (included in the total vacancy figure).
Mr. O’Connor said, “In an environment of uncertainty with a focus on cost reduction, a diverse range of organisations have released sublease space to the market in Q3. Some of the sublease space will be challenging to lease as it has an older style fitout or is only being offered for a short-term lease of less than 3 years.”
The Melbourne CBD recorded -70,100 sqm of net absorption over the quarter and vacancy increased to 11.3% in 3Q20.
Mr. O’Connor said, “A number of new developments reached practical completion in Q3. However, the extended lockdown in Melbourne has negatively impacted the leasing market with the availability of backfill space and sublease space contributing to the uplift in vacancy.”
Canberra was the only CBD office market to record positive net absorption in Q3 (+7,000 sqm). Canberra is now the only CBD office market recording a single digit vacancy rate (8.4%).
Mr. O’Connor said, “The Federal Budget is likely to be positive for the Canberra office market. The budget papers highlighted an expected increase of 3,666 Australian Public Service employees (excluding military and reserves) over the 2020/21 financial year.”
The Brisbane CBD recorded -21,200 sqm of net absorption in 3Q20. The headline vacancy rate increased by 0.8 percentage points to 13.6% over the quarter.
Mr. O’Connor said, “The majority of Brisbane CBD leasing enquiry is smaller organisations seeking fitted space. The public sector is in a holding pattern ahead of the Queensland State election in late October.”
The Perth CBD recorded -4,800 sqm of net absorption over the quarter. As a result, the Perth CBD vacancy rate increased marginally to 20.4% in 3Q20.
Mr. Ballantyne said, “Chinese steel production has only experienced minimal disruption as a result of COVID-19 and is expected to surpass the 1.0 billion tonne mark for the first time in 2020. The iron ore price is intrinsically linked to Chinese steel production and has historically been a strong lead indicator for the Perth CBD office market.”
The Adelaide CBD recorded -10,200 sqm of net absorption in 3Q20. The headline vacancy rate increased by 0.6 percentage points to 15.4% over the quarter.
Mr. O’Connor said, “The Federal Budget makes an important contribution towards Australia’s economic recovery plan. The announcement of new investment incentives will be positive for private sector investment and should flow through to employment growth and renewed leasing enquiry.
“The Federal Government expects to see a rebound in the Australian economy in 2021. The trajectory of the economic recovery will determine the employment outlook and demand for office space. The most active organisations in 2021 are expected to come from the public sector, technology and healthcare industry sectors,” concluded Mr. O’Connor.
Australian CBD office markets net absorption
Source: JLL Research
JLL Chart – Q3 Vacancy Rate by Grade:
Australian CBD office markets, vacancy rate by grade
Source: JLL Research
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