The Australian Property Council has released its bi-annual Office Vacancy Report and boy is there a blowout nationally:
Vacancy rates across the nation’s office markets have topped ten per cent, according to the Property Council’s latest Australian Office Market Report.
The report notes that vacancies rose from 8.4 per cent in January 2013 to 10.1 per cent in July.
“There is no surprise that weak office space demand mirrors Australia’s lacklustre economic fundamentals,” said Property Council CEO, Peter Verwer.
“Stubbornly low business and consumer confidence is impeding job growth and new investment, which translates into dwindling demand for office space,” Verwer said.
“The decline in white collar jobs growth to a third of the level experienced prior to the GFC has severely blunted demand and business expansion plans.”
“Australia’s office markets shrank by around 170,000 square metres during the past six months – the negative demand is the lowest since July 2009.”
“All CBD markets recorded negative absorption.”
“The Brisbane CBD recorded the biggest lift in vacancy – from 9.3 per cent to 12.8 per cent – on the back of slowing population growth, an inert resource sector and competition from the Brisbane Fringe market.”
Although vacancy rates increased from 7.0 per cent to 9.8 per cent, Melbourne has surprised most analysts.
“Despite a massive boost to supply – more than two and a half times the historical average – the market took up more than 72,000 square metres.
The report also highlights a jump in sub lease vacancies, although they remain well below levels recorded during the recession of the early 90s.
“Sub lease spaces comprises more than 10.6 per cent of total vacancies and reflects the nervousness of businesses; however, this could reverse quickly if confidence returns after the election,” Verwer said.
The report says overall projections for new supply herald a period of consolidation until late 2015 when a supply spike is due.
“The commercial market’s fragile demand dynamics underline the urgent necessity for the major political parties to outline a robust and convincing plan for economic growth,” Verwer said.
“Everyone is looking to lower interest rates and the Federal election as a circuit breaker that will restore business investment mojo and move the commercial space market back to a growth phase.
Jeez, if one more person says that I’ll scream. New normal, people, new normal.
Meanwhile, the AFR is reporting that the weakness has induced an “incentive bubble”:
Find a tenant to fill up three prime office floors in the IBM tower in Brisbane and the landlord, Peter Harburg, will give you his Porsche Cayman.
Fly-fishing trips to New Zealand and $20,000 cash are just a few of the other incentives being offered by different landlords to agents that can get a new tenant in a market hurt by rising vacancy.
While the motivation is clearly there for agents, it is the tenants who are the real winners with at least three deals involving 40 per cent incentives in Sydney and Brisbane recently .
“There is so much vacancy across all classes of office space that landlords are clawing each others eyes out to get revenue in the door,” White & Partners tenant advocate Mark Grant said.
I’m a little surprised by the pervasiveness of the softness but that’s what you get when engineer a structural adjustment to a mining boom that implodes on ya!
