Office Market Outlook & Update

A brief overview of current and forecasted trends in Australia’s office markets

Office Market Trends & Outlook

BY KRISTY KERSWELL

Whilst COVID-19 restrictions have been winding down across Australia, the long-reaching effects have seen businesses reviewing their operational strategies going forward. This has resulted in a signifiant fall in demand, with the Sydney CBD offie market being hit the hardest (Savills, 2021). Whilst most CBD markets have been signifiantly impacted, the Canberra CBD offie market has remained resilient, which is largely due to the consolidation of government tenant’s headquarters throughout the pandemic (The Australian Property Journal, 2021). Over the past 12 months, there have been rises in offie vacancy rates nationwide, with Australian CBD offie vacancy rates rising from 8.00% at the end of H1 to 11.10% at the end of H2 (Savills, 2021). Sydney CBD vacancy is predicted to reach a peak of 10.7% in 2021 due to moderate supply and weak demand (m3property, 2021). A general national trend that has emerged in the CBD offie market is an increase in tenant-controlled supply/sub-leasing practices in an attempt to utilise unnecessary extra space that has been created from companies switching to flxible WFH arrangements (CBRE, 2021). Whilst it is obvious that the initial economic impacts of COVID-19 have been greatly mitigated by state and federal government stimulus packages, it is unclear as to how the cessation of government stimulus will impact offie markets going forward. H2 2020 has shown a trend of tenants negotiating short-term renewals, which will mean delays for long-term decisions as tenants wait for greater certainty (m3property, 2021).

It is anticipated that there will be divergence between primary and secondary yields, as some tenants have been impacted disproportionately. This has impacted the income risk for each individual property, and this has further highlighted the differences in asset and tenant quality, which will likely be reflcted in yields Savills, 2021). Values of assets with poor tenant profiles in scondary locations are expected to decline, whilst prime assets with low income risk are forecast to maintain their value and show some growth over 2021 (m3property, 2021).