High Quality Office Space Seeing Ongoing Demand
As businesses continue trying to woo workers back to the office, demand for high-quality office space continues rising. Ray White Commercial Head of Research, Vanessa Rader, said businesses have been looking at creative ways to improve their office spaces – including reconfiguring the working environment to provide flexibility and collaboration or relocating to new premises.
“The flight-to-quality internationally is real, with prime leasing deals representing as much as three-quarters of all transactions, improving vacancies across the premium and A-grade end of town in some markets,” Ms Rader said.
“Markets around the world have been impacted, with major cities such as New York recording vacancies eclipsing 20 per cent, and Toronto as much as 15 per cent. European cities such as London and Berlin have high vacancies, yet sit below Australian levels, while Asian markets such as Tokyo and Hong Kong are showing signs of improvement.”
In Australia, Queensland remains the standout office market, with Brisbane’s CBD one of the few to post a lower vacancy rate, with Brisbane’s fringe having the greatest non-CBD take up, while the Gold Coast boasts the lowest vacancy rate in the country, Ms Rader said.
“Brisbane CBD currently boasts a prime vacancy of 12.5 per cent compared to 10.4 per cent in the secondary market, however, we cannot look at this data in isolation,” she said. “There has been strong take up recorded in the CBD over the last 12 months of 52,543sq m, which has eclipsed the secondary market.
“For markets in both Queensland and Western Australia, population growth has spurred on office activity with positive take-up recorded across both quality grades, unlike other states. However, the bulk of activity remains in the prime end of town, highlighting this flight-to-quality.”
Ms Rader said the Sydney CBD is seeing vacancies in both prime and secondary buildings at similar rates of 11.4 per cent and 11.7 per cent. “While the absorption of space for Sydney’s markets, such as the CBD and Parramatta, has not had the volume to move the vacancy rate downwards, it is clear new tenants are fleeing older-style stock for shiny, premium and A-grade offerings,” she said. “Continued new supply of high-grade assets is not allowing these markets to reset after the COVID-19 disruption.”
Ms Rader also stated the Melbourne CBD was the only location to see both prime and secondary occupancy levels fall. “This market has been the worst affected by pandemic lockdowns, and looking ahead its improvement will likely be hampered by high volume of supply additions with only partial precommitments,” she said.
“Over the last 12 months the Melbourne CBD has lost over 90,000sq m of tenancies, with close to 70 per cent of these from secondary assets. This raises the question of what will the future hold for secondary office buildings?”