Despite Covid restrictions slowly easing around the country, it will take some time before businesses and employees return to the CBD amid ongoing “uncertainty”, according to the latest Herron Todd White Month in Review.
In the March report, Herron Todd White Commercial Director, Angeline Mann said it’s likely the office market will take some time to recover from the impact of lockdowns.
“We anticipate the office market to remain generally volatile and uncertain through 2022,” Ms Mann said.
“We are reasonably confident that a slow return to the workplace around the country is probable, however, we do not consider this likely to result in a significant increase in market demand, more a gradual increase.
“We anticipate that it will take some time for the market to adjust and for confidence to return. There are already signs in some markets that this has started to happen.”
According to the Property Council of Australia, the national vacancy rate for offices was 12.1 per cent in January, up from 8.4 per cent in January 2020.
Ms Mann said people opting to return to the CBD remained low.
“The office market nationally continues to suffer the impacts of the pandemic,” she said.
“Around the country, we have seen significant increases in vacancy rates, and sadly many CBDs continue to be substantially unoccupied.
“Generally speaking, a reluctance to return to office environments remains, with many employees across our capital cities preferring to remain working from home, and businesses facing ongoing concerns about multiple staff simultaneously contracting Covid-19 in the workplace.”
Sydney
The Property Council reported Sydney offices had a vacancy rate of 9.3 per cent in January 2022 compared to 9.2 per cent in July 2021 and, according to Ms Mann, demand remains low across the city.
“The year ahead for the office sector throughout Sydney is likely to be dominated by uncertainty,” she said.
“While confidence appeared to be slowly returning to the sector, the long lockdown of 2021 and subsequent Omicron outbreak has resulted in both the Sydney CBD and metro CBDs remaining quiet.”
Ms Mann said landlords are offering steep incentives to try and bring business back.
“While we may have assumed that office rents would improve in 2021, it looks as though this will be the challenge for the sector as we head into 2022,” she said.
“The recent push by the New South Wales government to have staff return to offices in both Sydney CBD and Parramatta is likely to improve the overall use of the major CBDs and see more people returning to offices.
“We expect to see leasing conditions improve but inquiry levels being for smaller tenancy sizes as it’s clear that the shift to splitting time working from the office and working from home is permanent.”
Melbourne
According to the Property Council of Australia’s Office Market Report, Melbourne’s CBD office overall vacancy rate has increased from 10.4 per cent to 11.9 per cent over the six months to 1 January 2022.
HTW Director, Jason Stevens said the relative cost of CBD office space could spur a return to the city.
“The repercussions of the Covid-19 pandemic are being acutely felt within the Melbourne CBD office market and are best illustrated by the escalation of the office vacancy rate,” Mr Stevens said.
“With the ongoing effects of the Covid-19 pandemic still being somewhat unforeseeable, in 2022 we anticipate a flight to quality out of the suburbs and fringe CBD locations and into the high-quality CBD office space sector on offer for roughly the same total occupancy cost.
“Despite overall vacancies rising, we expect to see a sharp rebound as we have historically observed from other economic downturns.”
Brisbane
HTW Associate Director Edward Cox said mask mandates have been slowing down the recovery in the Brisbane office market.
“Whilst the start to 2022 was less than ideal, Covid case numbers appear to have peaked and there is now a discernible (though slow) drift back towards working in the office,” Mr Cox said.
“We consider that this is likely to accelerate, particularly when mask mandates are lifted.
“Now that interstate and international borders are open, we should see improved activity in the capital markets sector and it’s widely expected that yields for prime assets will remain strong in 2022.”
Adelaide
Across Adelaide, vacancy rates have remained relatively flat according to HTW Commercial director Chris Winter.
“Vacancy rates are steady despite the work from home push,” Mr Winter said.
“Whilst vacancy rates remain relatively stable, incentives have been noted at 45 per cent for prime CBD office space and 50 per cent incentives for secondary space.”
“Much of the upward pressure on incentives has come from tenants with expiries over the past six to nine months seeking short term hold-over agreements to allow market conditions to settle.
“This has translated to an increase in competition between landlords to attract the few active tenants.”
Perth
According to the Property Council Office Market Report, Perth’s CBD total vacancy rate dropped from 16.8 per cent to 15 per cent in the six months to January 2022, the lowest vacancy rate recorded since January 2015.
HTW Director Greg Lamborn said the Perth market is showing positive signs of life to start the new year.
“The opening of the state’s borders is likely to spark a wave of intrastate and overseas migration this year and help alleviate the skilled worker shortage currently plaguing the local economy,” Mr Lamborn said.
“Whilst this may prove to be the start of a recovery, there remains a visible vacancy factor in Perth’s traditional office districts, particularly for non-premium grade accommodation.
“From a leasing perspective, a two-tier market is clear as companies take advantage of the considerable incentives on offer to relocate to premium and A-grade accommodation whilst lesser grades are left languishing with minimal inquiry in this space, particularly in the fringe East and West Perth markets. We expect this trend to continue in the short term.”
Darwin
HTW Director Terry Roth said the Northern Territory office market benefited from minimal lockdowns.
“Occupancy in the Darwin CBD office market appears to have been less affected by Covid issues than some other capitals,” Mr Roth said.
“Darwin has not seen the dramatic fall in CBD foot traffic that developed elsewhere.
“Darwin’s overall office vacancy rate (as reported by the Property Council of Australia) remains the highest Australian capital at 17.6 per cent, but there is a limited supply of available A-grade space in the CBD.
“We therefore anticipate that the Darwin CBD office market will continue in a holding pattern for the next 12 months.”
