There are now massive disparities between capital city office markets

There are now massive disparities between capital city office markets
Chris LangDecember 7, 2020

No longer are Australia's main capital cities' office markets in sync.

During the last century, the CBD markets seemed to operate within a fairly regular 18-year cycle — in other words, from "peak to peak".

However, all at ceased when the global financial crisis hit in 2008.

In the lead up to that, developers in Sydney and Melbourne had predominantly undertaken projects with significant tenant pre-commitments.

Brisbane and Perth had seen a huge amount of speculative development occur — driven by the hype of the mining boom.

CBD-Offices

Source: Property Council of Australia, via Fairfax.

The Wash Up?

As the table above confirms, there is now a massive disparity between the various capital city office markets. 

Sydney and Melbourne were the only cities to improve their vacancy.

As you can see, the latest PCA survey shows Sydney and Melbourne were the only cities to improve their vacancy for office space, over the past six months.

For Brisbane and Perth, vacancy rates have clearly blown out, while demand is actually falling.

Over the period, you saw the vacancy rate for Sydney decline from 9% to 8.4%. Similarly, the rate for Melbourne dropped from 8.7% to 8.5% and sits at around just 4%, for Docklands.

The Mining States

By contrast, the vacancy rate in Brisbane rose from 14.2% to 14.7%. It will most likely hover around this level for the next few years.

The Perth market is not far behind — with its vacancy rate rising from 9% to 11.8%, over the past 6 months. As with Brisbane, demand for space has declined; and Perth's vacancy rate may creep even higher, over the next few years.

Looking Forward

Since late last year, the Sydney and Melbourne markets have certainly improved. And you are already seeing major investment from overseas buyers — keen to capitalise on the upturn, and rising prices.

Unfortunately, Brisbane and Perth are probably lagging between three to four years behind — because of the huge amount of vacant space needing to be absorbed.

Bottom line: You can expect the Sydney and Melbourne office markets to grow solidly over the next four or five years — and are likely to peak around 2019/20.

That may well be the time for you to switch your investing to Brisbane and Perth — as they will then be enjoying their recovery phase.

Chris Lang

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property.

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