The vacancy rate for Australian office space has reached a 24-year high amid reduced demand during the CCP virus pandemic, at the same time new supply continues to pour onto the market.
A Property Council of Australia Office Market report for the six months leading to January 2021 found the vacancy rate for Australia’s office market increased from 9.6 percent to 11.7 percent—its highest level since January 1997.
CBD vacancies reached a six-year high, increasing from 9.2 percent to 11.1 percent. Non-CBD markets recorded their highest vacancy levels since 1995, rising from 10.4 percent to 13.4 percent.
Office vacancies are calculated based on whether there is a lease for office space and not on whether tenants have employees occupying the space.
Property Council Chief Executive Ken Morrison said that while the lockdowns and stay at home restrictions imposed due to the pandemic had reduced demand for office space, most of the increase in vacancy is attributed to new office buildings entering the market.
“While it was not a surprise to see office vacancies increase in the middle of a pandemic, it is the new supply of office space that is responsible for three-quarters of this impact, not reduced tenant demand,” Morrison said in a statement.
“While vacancy rates for the six months to January 2021 are now the highest in some years, there is still strong interest in commercial property as evidenced in recent deals, particularly for premium CBD stock.”
The report found almost 550,000 square metres of office space was added during the period, while office space that went empty added up to over 150,000 square metres.
Sydney and Melbourne, the best performing CBD markets prior to the economic downturn, experienced the largest increase in vacancy. Sydney went from 3.9 percent to 8.6 percent and Melbourne from 3.2 percent to 8.2 percent.
All other major CBD markets reported double-digit vacancy figures.
“As our office markets adapt to a COVID-normal setting, business and government have a critical role to play in supporting the return to office workplaces and helping more people come back to office precincts,” Morrison said. “Vibrant CBDs drive investment, growth and productivity and must be part of our national recovery planning.”
Telstra CEO Andy Penn believes the workplace will “never return to normal” and urges business and governments to rethink how they approach hiring and the office workplace.