Article | Future Cities
National Office Leasing Market Snapshot
Office demand has remained strong across Australia in the face of economic instability.
August 17, 2022
With Australia’s unemployment rate falling to record lows and corporate profitability remaining strong, office users are looking beyond the current economic instability and remain focused on securing quality office solutions that will attract and retain staff for the long-term. CBRE recorded 203,528sqm of new 1,000sqm-plus transactions across the national market in H1 2022 and activity grew exponentially in the past three months –146,572sqm in Q2 against 56,956sqm in Q1 –as the market normalised after the COVID restrictions of late-2021 and early-2022.
Vacancy rates have generally stabilised across the country with the amount of sublease space returning to the market reducing considerably. During the current cycle, sublease availability peaked in September 2020 at 428,600sqm but has since retracted to 268,553sqm, as tenants proactively pursued competitively-priced space with high-quality existing fitouts. While sublease vacancy will continue to fluctuate in the short term, particularly as major users resolve their long-term office accommodation strategies, it is expected to trend back towards long-term averages over the next 12 months, representing about 1% of the total market.
Face rental growth is emerging as a strong theme in both existing assets and new development stock, albeit with incentives remaining elevated across most Australian markets. Escalating building costs are driving increased economic rents for new office construction, while landlords are repricing existing stock as they seek to minimise the impact of the current inflationary environment. Gross face rents have grown nationally by 2.3% y-o-y to June 2022.
Tenant interest in new office development projects remains high across the country, as major office users seek to reinvent their workplace experience and provide more comprehensive amenities for their staff and customers. We anticipate a significant number of pre-commitment transactions across the east coast market will be announced in the second half of the year.
Vacancy rates have generally stabilised across the country with the amount of sublease space returning to the market reducing considerably. During the current cycle, sublease availability peaked in September 2020 at 428,600sqm but has since retracted to 268,553sqm, as tenants proactively pursued competitively-priced space with high-quality existing fitouts. While sublease vacancy will continue to fluctuate in the short term, particularly as major users resolve their long-term office accommodation strategies, it is expected to trend back towards long-term averages over the next 12 months, representing about 1% of the total market.
Face rental growth is emerging as a strong theme in both existing assets and new development stock, albeit with incentives remaining elevated across most Australian markets. Escalating building costs are driving increased economic rents for new office construction, while landlords are repricing existing stock as they seek to minimise the impact of the current inflationary environment. Gross face rents have grown nationally by 2.3% y-o-y to June 2022.
Tenant interest in new office development projects remains high across the country, as major office users seek to reinvent their workplace experience and provide more comprehensive amenities for their staff and customers. We anticipate a significant number of pre-commitment transactions across the east coast market will be announced in the second half of the year.