Australia’s office vacancies reach highest level since 1990s.
Australia's office vacancies reach highest level since 1990s.
Australia’s Office Vacancy Rates Rise to 1990s Levels, Posing Challenges for Landlords
Sydney, Aug 3 – Vacancy rates for office spaces in Australia have reached levels not seen since the 1990s, indicating the challenges faced by landlords in filling buildings left empty during the COVID-19 pandemic. The downtown areas of Sydney, Melbourne, and Perth, where most large companies are located, already had vacancy rates above 10%. Additionally, these rates increased between 0.2% and 0.9% in the first half of the year, with Melbourne’s central business district experiencing the highest rise. These findings were revealed by biannual data published by the Property Council of Australia1.
The national CBD vacancy rate, according to the data, increased from 12.6% to 12.8% during the first half of the year. Although the pace of increase has slowed compared to the second half of 2022, when it rose by 0.6%, office landlords still face the challenge of tenants looking to reduce their office space due to the surplus created by remote working. This, coupled with rising interest rates impacting property values and debt servicing costs, potentially presents an existential crisis for the sector2.
While Australian office spaces are undoubtedly under “significant pressure” from higher rates, the region is in a far better position compared to struggling markets such as Los Angeles or New York, as shared by Mark Curtain, the Senior Managing Director for Advisory and Transaction Services, Pacific at CBRE. Curtain expressed confidence that the Australian office sector will stabilize and experience a strong rebound in the coming years3.
The major real estate investment companies in Australia are facing the challenge of confronting investors who have caused their share prices to plummet by up to 50% from their highs. These companies argue that their portfolios, filled with premium office buildings in prestigious parts of major cities, will help shield them from the broader downturn in the real estate market. However, a review of historic reports reveals that vacancy rates for prime offices in Sydney and Melbourne have actually increased over the past two years. In the case of Sydney, both prime and secondary office vacancy rates are nearly identical, hovering around 11%4.
The current situation in Australia’s office sector is undoubtedly challenging for landlords. The COVID-19 pandemic forced businesses to adapt to remote working, resulting in many companies reconsidering their office space needs. However, despite these difficulties, there is hope for the industry’s recovery. Australia’s market differs significantly from struggling markets like Los Angeles or New York, providing a more favorable position for a rebound. It is clear that the road to recovery may be bumpy, but the Australian office sector has the potential to stabilize and thrive in the coming years5.
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Reuters. “Australia’s office vacancy rates creep higher, to levels not seen since 1990s.” Retrieved from here.↩︎
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Reuters. “Australia’s office vacancy rates creep higher, to levels not seen since 1990s.” Retrieved from here.↩︎
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Reuters. “Australia’s office vacancy rates creep higher, to levels not seen since 1990s.” Retrieved from here.↩︎
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Reuters. “Australia’s office vacancy rates creep higher, to levels not seen since 1990s.” Retrieved from here.↩︎
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Reuters. “Australia’s office vacancy rates creep higher, to levels not seen since 1990s.” Retrieved from here.↩︎