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Covid-battered office markets hit double digit vacancy rates

Melbourne, now the country’s largest office market by square metres, has seen a huge increase in space, adding 350,000 sq m to the CBD in 2020 and faces the prospect of gaining a similar amount over the next three years.

Not surprisingly, the city’s vacancy rate has risen to 8.2 per cent from an all-time low of 3.3 per cent before the pandemic. Sydney’s vacancy rate was 8.6 per cent at the end of January, up from 5.6 per cent in July.

The growing glut of empty space has prompted calls from landlords, city officials and governments for businesses to hasten employees’ return to work, but most acknowledge flexible work arrangements are here to stay.

Savills’ head leasing agent in Victoria, Mark Rasmussen, said his firm was forecasting that vacancy rates above 10 per cent were a short-term phenomenon as professional services, government and flexible space providers would underpin demand. “Whilst the ‘collateral damage’ from COVID will be significant in some sectors, others are strong,” he said.

JLL’s Daniel Kernaghan, head of office leasing NSW, said many businesses have now put into place their future office plans, looking to take advantage of the tenant favourable market conditions and move to better quality office space.

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The report shows some submarkets are performing better than others.

Parramatta in Sydney’s west retained its moniker as the most sought-after space with low vacancies (it rose from 4.8 to 6.4 per cent over the six months to January 2021) despite close to $8 billion worth of new office construction in the past five years.

CBRE’s head of office leasing, Mark Curtain, said some positive signs were starting to emerge, including large tenant pre-commitments in Sydney, Melbourne and Adelaide from both public and private sector users.

“Tenant engagement surveys indicate that most corporates will seek to bring the majority of their staff back to their corporate office but offer employees greater locational flexibility and more generous workspace ratios to achieve acceptable social distancing,” he said.

Telco giant Telstra, a major employer with 25,000 staff around Australia, transitioned the bulk of its office workforce to home working in March last year and the majority are yet to return. It has stated a commitment to flexible working arrangements. “We’ll be focused on giving people choice and flexibility when it comes to where and how they work post-COVID,” it said.

Other businesses, particularly large professional services firms, are adopting a “hub” approach, giving staff the option of working from home, the office, or at their clients’ premises.

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