All capital cities have seen post-GFC employment recovery

GUEST OBSERVATION

The GFC impacted employment growth in all capital city markets — at the metropolitan level, the rate of employment growth slowed sharply, whilst in all CBD markets with the exception of Melbourne, employment actually fell.

The chart below shows the comparative growth in stand alone office employment amongst Australia’s major capital city markets up to and since the GFC. It highlights the sustained growth in employment that has occurred across Perth over the past 20 years and, most notably, the extraordinary boost to employment in stand alone office workforce — that is, people that work in freestanding office buildings — that occurred across the metropolitan region from mid 2011 to December 2012 associated with the mining investment boom. But, as highlighted in the chart, office employment in Perth has stalled over the last year.

Chart: Metropolitan stand-alone office workforce by city, index 2008=100

The recovery in employment across Australia’s major capital cities since the GFC has varied markedly, with growth to December 2013 ranging from just under 4% in Adelaide to almost 33% in Perth. The next closest rival, Melbourne, has seen growth of close to 17% over the same period, although the past two years have been weak. Brisbane and Sydney have achieved just 7.4% and 8% growth respectively — indeed, we’ve been waiting some time for the long-expected recovery in employment within Sydney.

Over a longer term horizon, after Perth, the strongest growth in stand alone office employment has occurred in Brisbane and Melbourne. Like Perth, Brisbane has benefitted from major phases of mining investment, as well as having a broad-based state economy, underpinned by rapid population growth and expansion in the financial services and government sectors. Whilst employment growth stalled with the advent of the GFC, it was quick to recover—rising by 9% to June 2012. Since then employment has been impacted sharply by a combination of efficiency drives amongst both government and private sectors and the setback to mining investment.

Following the early 1990s setback to employment caused by recession in that State, Melbourne has witnessed sustained growth off the back of a number of ‘structural positives’ that saw the state economy often benefit disproportionately. Rapid population growth and the ready availability of reasonably priced residential land underpinned strong dwelling investment. Indeed the overall construction sector experienced strong, consistent growth. Office and white collar employment were underpinned by competitive office rents and a strong finance and business services sector. Most importantly, Melbourne sustained an office rental cost advantage relative to most other capital city markets through most of the post-2004 period when it was undergoing strong expansion of its office stock — due largely to the availability of low cost sites in Docklands.

By contrast, Sydney’s stand alone office workforce experienced its fastest period of growth during the 1990s and since then growth has lagged most other capital cities. Since the GFC employment accelerated during 2010, with an expectation that it would be sustained ,but stalled again during 2011 as global economic weakness, low levels of business investment and poor business confidence conspired to hold back employment growth. Most impacted was the key finance and insurance sector.

What will happen going forward? Over the next five years, we expect the eastern seaboard cities will witness the strongest growth in stand alone office employment, with Sydney set to lead the way, underpinned by growing momentum in the construction sector, stronger public sector investment and a steady improvement in the state economy.

Beverley Taylor is director of property with BIS Shrapnel.