Job growth surge spills into CBD markets: Deloitte Access Economics

GUEST OBSERVER

Job growth has been on the surge for a while now. And much of that surge makes sense:

Although China is squeezing Australia's income, it has had much less of an impact on our production growth, and it's the latter which drives jobs.

Even better, within the overall economy, the sectoral make up has seen greater strength in service sectors, which by and large are the key job generating industries in the nation.

Finally, a combination of weak wage growth and good productivity gains has made workers a more competitive option for businesses as they decide between more workers and more machines.

That backdrop is one which is increasingly favourable for the nation’s CBD office markets. The strength in the national job numbers had held true for white collar employment as well, but it had been failing to fully translate into bums on seats in CBD offices. Yet latest data have shown that gap narrowing pretty fast. However, this is very much a Sydney story. The picture remains mixed outside the Premier State, with Melbourne doing fine but Brisbane and Adelaide both labouring, and Perth continuing on its downward spiral. In fact, outside of NSW itself, the most notable good news story is that a pause in public sector cutbacks has seen Canberra’s market steady of late, though even there the overall job numbers are continuing to fall.

The big office markets of Sydney – Sydney CBD and North Sydney – are at sixes and sevens. Or to be more specific, overall jobs in those markets have grown at rates in the range of 6-7% in the last 12 months. In case you are wondering, the last time that the CBD was at that speed was ahead of the Sydney Olympics. Cathy Freeman hadn’t done a victory lap when the pace of growth in CBD office demand was last this strong.

While Sydney’s performance ranks alongside Ben Johnson’s at the Seoul Olympics in 1988 – and for potentially some of the same artificial reasons – Melbourne’s job gains have been strengthening, but remain more believable than those north of the Murray. To be clear, it’s not that white collar job gains in Melbourne’s CBD are accelerating by that much, but they are now clearly ahead of this market’s longer term trend rate of growth (which, by the way, is the strongest of any bar that of Canberra).

Brisbane – in contrast – remains very much more subdued. Or, at least, that’s true of the CBD, with the Near City market much healthier. To be clear, this isn’t an office market that is going backwards. 2014-15 marked a return to growth in Brisbane’s CBD office demand, and 2015-16 seems to have cemented that return to growth. Yet most rebounds show an initial turn of speed, and that simply isn’t the case in Brisbane.

A fast fading resources boom has torn strips out of the performance of the Perth market. That pain will eventually end, but – despite some green shoots – there’s not going to be much joy generated any time soon. It’s on the back foot already, China is still slowing, miners remain under a lot of financial pressure, and big construction projects are essentially in a run off phase, with very few new projects to follow in their wake.

Unlike much of the rest of Australia, Adelaide isn’t benefiting from measured strength in the finance sector.

Moreover, with 2016-17 shaping up as one of weakness in business services, it may be a few years before this particular market finally gets back in gear.

Canberra’s time in purgatory seems set to end. 2016 is, after all, an election year, and such years often trigger promises that usher in a greater need to for public service. These forecasts point to a return to happier times for the capital’s office demand.

James Allnutt is a Deloitte Access Economics director specialising in demographic, forecasts of state economies, and property demand.