Property Council of Australia 1H20 Office Market Report shows vacancy in Sydney, Melbourne, still tight

The Property Council of Australia released its twice annual Office Market Report today.

The national stock comparison showed vacancy in Adelaide and Perth improved since the 2H19 (known in industry circles as ‘the July’) OMR.

Melbourne’s CBD had he highest occupancy rate of any capital – at 96.8 per cent.

The PCA said more than 680,000 square metres of office stock is due to be added to the national stock list this year – four fifths between Sydney and Melbourne.

We’ve combined the 1H20 (often called ‘the January’) statistics – available for purchase via the PCA at this link and first reported by the Australian Financial Review – with rental performance, and an analysis of other drivers, for a summary of the major markets:


Vacancy rose slightly from 3.7 per cent to 3.9 per cent in the Sydney CBD since last July.

A reduction in net supply of stock in the capital this year will make it more difficult for tenants to find contiguous space.

But while owners are expected to use the demand to push up rents, they will need to increase incentives to entice occupiers, CBRE associate director, Research, Ben Martin-Henry warned.

North Sydney

Last July Microsoft pre-committed to part of an office at 1 Denison Street, North Sydney (artist’s impression, centre). Set to rise 39 storeys, the tower will be the precinct’s tallest.

Colleague Stefan Perkowski, Office Leasing director, added that leasing momentum in the North Sydney office market is building “highlighting a genuine reluctance on the part of many long-standing occupiers to consider a move across the bridge”.

Last July Microsoft committed to about 10,000 sqm at what will be North Sydney’s tallest office building at 1 Denison Street (pictured, right).

Microsoft will consolidate staff from several suburban Sydney location including its existing North Ryde headquarters.

It will be joined at 1 Denison Street by Nine Entertainment Corporation and Ooh Media.

All up, more than 50,000 sqm of office space was leased in North Sydney last calendar year.

“We are working on several additional leases that are expected to set new benchmarks for the North Sydney market, and we’ve seen a groundswell of business confidence,” Mr Perkowski said.

“Tenants are prepared to sign up for longer leases and capitalise on opportunities to update their office accommodation.

“There is an embedded culture with many occupiers, who like the convenience of being in a lower north shore location, close to schools and providing a good work/life balance”.

Very few tenants looked to “jump ship” in 2019 and relocate to the CBD, the executive said.

“Our analysis of last year’s lease deals showed that just eight per cent of relocating tenants elected to move across the bridge; most moves involved companies expanding into better quality North Sydney buildings”

This year CBRE expects inquiry to continue to rise from CBD based tech-based occupiers for North Sydney offices.

The precinct’s improving amenity, connectivity and availability of new office accommodation, will be drivers, the agency added.

A 30 per cent difference in rents compared to the Sydney CBD, helps.

“It is quickly becoming the location of choice for organisations to attract and retain talent, as North Sydney transforms from North Sydney to Sydney North,” Mr Perkowski added.


Canberra recorded the strongest increase in net face rent than any other major office market, coming in at 11 per cent, Mr Martin-Henry said.

“This…growth can be attributed to the completion of the first stage of the Civic Quarter, and landlords re-positioning secondary assets,” the executive added.

The vacancy rate meanwhile, increased over the past six months, from 10.3 per cent to 11.1 per cent.

Melbourne CBD

Last year Charter Hall applied to build a 35-level, 46,000 square metre Premium-grade building at 555 Collins Street.

A building boom underway in the Melbourne CBD will see close to 300,00 sqm come into the market this calendar year.

As such, landlords can’t be as confident as they have been about rent increases, come renewals – despite the low vacancy rate of 3.2 per cent (down from 3.3 per cent last July).

“Given the strength of the Victorian economy, most notably white-collar employment growth, we are not expecting to see any vacancy blowouts,” Mr Martin-Henry said.

Net face rents increased 6.9 per cent in 2019, Caitlin Murdoch, director, Office Leasing, said.

“With reduced options in the market, a large number of tenants renewed or moved temporarily into co-working spaces, with the view to testing the market in more favourable times.

The part of the city classified by the PCA as East End recorded the tightest vacancy.

It is heavily occupied with banking, government and professional services businesses.

CBRE said government and infrastructure groups, the growth sector employers last year, will continue to be strongly represented in leasing circles over the coming 11 months.

“Despite the large volume of new supply starting to come on line, of which the majority is pre-committed, vacancy is predicted to remain below historical averages due to strong occupier demand,” Ms Murdoch said.

“In the second half of this year we will start seeing some of the backfill trickle into the market with the vacancy forecast to increase to mid four per cent.

“The bulk of it will be delivered in 2021, when we expect net effective rental growth to slow”.

Incentives for prime grade assets reduced to approximately 27 per cent in the second half of 2019, the agent added.

This is expected to rise to around 30 per cent as the vacancy rate rises.

“The city fringe office market remains of interest for large corporations, with a number of mooted developments fighting for tenants,” Ms Murdoch said.

“However we are yet to see a major CBD tenant relocate to a fringe location”.

BHP, Sportsbet and Origin Energy were among the companies that looked closely at relocating to Richmond last year.

“Ultimately all decided the CBD was still their best option given current market conditions,” Ms Murdoch said.


Dexus’ 12 Creek Street Annex is due for completion this month.

Fortunes are reversing in the Brisbane CBD, with “a pronounced” reduction in the number of contiguous prime accommodation options since last year, according to CBRE.

Just three offerings for A-grade quality area of greater than 5000 sqm are available.

That said, the overall CBD vacancy rate rose, from 11.9 per cent to 12.7 per cent over the past six months.

The PCA said 1.3 per cent of stock was withdrawn from the market over the same time.

“While demand is still patchy, we’ve certainly seen some improvement from the resource sector,” CBRE state director, Office Leasing, Chris Butters, said.

“The co-working sector also emerged as a significant net absorber of space last year” the executive added.

“The re-centralisation of metropolitan tenants to the city is also a trend”.

CBRE said the lack of new supply will present an opportunity for landlords following the completion of 300 George Street.

Dexus’ 7000 sqm ‘boutique’ 12 Creek Street Annex is also due for completion this month.

But after that, the city is not set for any new supply until the completion of the Midtown Centre (incorporating sites at 155 Charlotte Street and 150 Mary Street) in mid 2021.

This hiatus, Mr Butters said, would help put downward pressure on vacancy rates.

“It does feel like we’ll see a new wave of construction begin this year, to help cater for some of the pent-up demand caused by the lack of prime market opportunities,” the broker added.

“However, we’re unlikely to see any of this new stock completed until 2024 at best and any new construction would have to be heavily pre-committed”.

Gold Coast

Office vacancy rates rose marginally on the Gold Coast in the six months to January, 2020.

But the region’s diversified economy, improving business confidence and investment in infrastructure and city centres, is expected to see it decelerate or reverse.

CBRE director, Office Leasing, Gold Coast, Nick Selbie, said the recent vacancy rate can essentially be attributed to a select few operators which have been either downsized or introduced underutilised space to the market on a sub-lease basis.

“Overall demand and activity in the A and B-grade markets remain consistent with a general flight to quality, retaining competitive rental rates.

“Larger, contiguous space of floorplates exceeding 1,000 sqm are in short supply, which has helped previously-mooted projects meet pre-commitment requirements, stimulating development activity across several business parks”

Alceon Group is set to complete a 5900 sqm building at the Acuity Business Park by July (Metricon pre-committed to 4500 sqm of it).

Two more proposed buildings at the park, containing a total of 9000 sqm of area, are approved.

CBRE said that this development should see the Robina/Varsity Lakes precinct surpass Southport in size for the first time.

About 38,000 sqm of Gold Coast office stock is approved or proposed to be completed from 2021.

“We also expect to see more new opportunities arise within Economic Development Queensland’s Lumina Health & Knowledge Precinct,” Mr Butters said.

“The 29 hectare Parklands Priority Development Area was created as part of the Commonwealth Games Village and is the subject of infrastructure investment of approximately $5 billion.

“It offers more than 15 building-ready development opportunity sites, with capacity of roughly 175,000 sqm.

In future development cycles, major occupiers will consider relocating to previously non-traditional locations, which will continue the CBD’s ongoing expansion, the executive added.

Perth CBD

Perth’s vacancy rate fell from 18.5 per cent to 17.6 per cent over the past 12 months.

Like Canberra, the Western Australian capital (pictured, top) recorded double-digit net effective rent increases last year, CBRE added.

“The ongoing recovery in the Perth office market is a result of the turnaround in the resource sector, which is driving the take-up of space underpinned by strong growth in white-collar employment,” Mr Martin-Henry said.

“Perth’s net effective rents increased by 11.7 per cent last year while net face rents rose 2.3 per cent, which despite sounding marginal, is a strong result for an office market that has been under intense pressure over the last few years”.

Perth (and Brisbane) is not set to see any material increase in office supply this calendar year – a boon for landlords wanting to see rents continue pushing upwards.

Colleague Andrew Denny, senior director, Office Leasing, said demand for Perth CBD offices is rising in line with the resources sector.

“We expect 2020 to be a similar year to 2019 for the CBD market, with the pace of the recovery increasing.

“We are seeing falling vacancies, continuing reductions in incentive levels at the top end of the market and some rent increases.

“It is likely these incentive reductions will spread to the A-Grade sector of the market”.

Vacancy levels in the Perth CBD are forecast by the agency to fall to around 15.5 per cent by the end of 2020.

Effective rental growth is expected to be around 12.5 per cent for the prime sector of the market. mostly driven by falling incentives, Mr Denny said.

“This is likely to be the highest level of growth in the country”.

The city should see some supply added – the Capital Square project currently awaiting approval seeking to add about 20,000-30,000 sqm by 2023.

Numerous tenants in the market looking to pre-commit to new buildings include Murdoch University, for 15,000 sqm.

Those lease pre-commitments are likely to be secured this year, for buildings one can expect would then start being constructed in 2021.

Adelaide CBD

Adelaide’s “new generation” A-grade buildings are essentially full – with little or no vacancy for contiguous space.

With that, face rents rose and incentives fell.

The CBD recorded a slight vacancy drop since July – from 14 per cent to 12.8 per cent.

CBRE senior director, Office Leasing, Andrew Bahr said there are still “a good number” of older generation A-grade buildings in the market with vacancy.

“Lease terms in those buildings are still equivalent to what they were 12 months ago, with incentives remaining at around 30-35 per cent.

“However, with no new buildings mooted for development until 2023 at the earliest, aside from 108 Wakefield Street that is currently under construction, conditions are expected to continue to improve for landlords,” the executive said.

“We’ve already had very good enquiry this year, with demand being even stronger than it was at the end of last year, which bodes well for 2020”.

At present in the city, two large development briefs are in the market: one for the state government’s DPTI, for 25,000 sqm, and the other, for the federal government, for 30,000 sqm.

Decisions about these pre-commitments are expected within five months.

The projects should be completed by about 2023, Mr Bahr said.

“If they proceed, there’ll be 35,000- 40,000 sqm of backfill space physically entering the market when those departments relocate out of existing CBD buildings.

“While the market is tightening at present, and we’re experiencing good growth and demand, there’s no room for complacency and owners will need to focus on optimising their existing product and recommitting to their assets in order to stay competitive.

“Overall, though, it’s the best conditions we’ve had in the Adelaide market for a long time.

“It was a tenant market for a long time, but it’s certainly swung in favour of the landlords, and that will continue through 2020”.

Share or Recommend article

Marc Pallisco

A former property analyst and journalist, Marc is the publisher of

Marc Pallisco