Strong economic conditions and office leasing fundamentals buoy CBD markets across Australia: Savills

Strong economic conditions and office leasing fundamentals buoy CBD markets across Australia: Savills
Strong economic conditions and office leasing fundamentals buoy CBD markets across Australia: Savills


Australia’s CBD office markets have recorded a drop in vacancy rates throughout the second half of 2018, with Canberra leading the charge by falling 200 basis points, according to Savills Australia.

The findings come as a preview to the Property Council of Australia’s (PCA) release of its 2019 Office Market Report on Thursday, with all CBD markets recording falls in their vacancy rates throughout the six months to December 2018.

Savills Australia’s director for Research & Consultancy, Shrabastee Mallik, said that the drivers for each CBD market were “vastly different”, though a normalisation in economic conditions across sectors and states, paired with strong office market fundamentals, were buoying CBD office markets across the country.

“We are at a point where we are seeing significant growth across a diverse range of industries, which is evident from gains in corporate profits in 2018,” she said.

“This has organically translated to growing requirements for workers in these industries. 

“In the September quarter, we saw the healthcare, mining, construction, and professional and technical services sectors driving total economic growth.”


In the Sydney CBD, the vacancy rate fell 50 basis points in the latter half of 2018 to 4.1 per cent, the lowest it has been since 2011, and one of the three lowest figures since the PCA started its Office Market Report series in 1990. There was a skew towards lessees from the property and business services, and finance and insurance industries seeking new office space.

NSW state director for Office Leasing, Tom Mott, said occupiers looking for office space greater than 3,000sqm with a start date in 2018 had been hard-pressed to find anything suitable.

“There was also merger and acquisition activity among law firms, and centralisation from the suburbs to the CBD, and the co-working trend continued,” he said.

“Apart from the co-working deals, staff attraction and retention were at the top of the agenda for why major office moves took place.” 

Mr Mott went on to say that despite the upcoming state and federal elections, which would typically suppress demand, building owners would continue to benefit from the lack of supply.

“As a result, we will continue to see net effective rental growth and ongoing competition for space,” he said.

Strong economic conditions and office leasing fundamentals buoy CBD markets across Australia: Savills

“With the tight supply in 2019, many occupiers will look to refurbish their existing premises, which will see them upgrade their break-out areas and collaboration zones.

“We’re seeing an ongoing focus on mental health and overall wellness, which is an evolving trend to encourage staff to engage with each other on a more personal level, and in turn retain them.”

Mr Mott said building owners with vacant space would be well advised to “create a customer-focused, innovative and warm end-to-end experience in their buildings to capture the tenants looking to move”.

Key lease deals in 2018 included Allianz for 10,820sqm at 10 Carrington Street; WeWork for 3,800sqm at 64 York Street; Mills Oakley for 5,673sqm and Pfizer for 4,640sqm, both at 151 Clarence Street; and Norton Rose Fulbright for 9,527sqm at 60 Martin Place.


In Melbourne, the CBD office vacancy rate fell 40 basis points to 3.2 per cent in the six-month period to December 2018, the lowest of all CBD markets nationally, which was largely in line with market expectations, given the limited amount of space available to lease. 

Savills research shows this phenomenon reflected in the leasing volumes, with just more than 250,000sqm (for space greater than 1,000sqm) leased in 2018, which was well below the numbers recorded in the past two years. 

“The simple fact is that office space in the Melbourne CBD is limited,” Ms Mallik said.

“The vacancy rate in June 2018 was already at a record low, so the scope for further downward movement is restricted.

“Tellingly, of the total leasing volume that was recorded last year, nearly half was for pre-commitments, further highlighting the lack of space currently available in the CBD.”

Melbourne’s CBD is experiencing a greater diversification in the tenant base, with government and education providers more prevalent than in Sydney, due to the lower rents.

Key lease deals in 2018 included NAB for 65,000sqm at 405 Bourke Street; Energy Australia for 22,000sqm at 697 Collins Street; Cbus Super for 9,600sqm at 130 Lonsdale Street; and the Australian Financial Complaints Authority for 7,600sqm, also at 130 Lonsdale Street.

VIC state director for Office Leasing, Mark Rasmussen, said Melbourne’s office market and economy had been “the powerhouse of the nation” in 2018, recently outpacing the rest of the eastern seaboard. 

“The dramatic falls in office vacancy rates throughout the past two years are becoming more gradual, as Melbourne moves towards a vacancy trough at the end of 2019,” he said. 

“We simply do not have the space to lease.”

Mr Rasmussen went on to say that the current vacancy rate was at an all-time low of circa 3.0 per cent, with the early 2020s trough expected to sink to mid-2.0 per cent, and A-grade office vacancy significantly lower again.

“At the coalface of the leasing market, we feel the frenetic pace of the Melbourne economy will slow with the looming federal election, the expected change of government, the reduced availability of credit, and the geo-political challenges across the globe,” he said.

“Despite these challenges, tenants with leases expiring in 2019 are faced with a lack of options and continued high rental growth, which has been close to 10 per cent per annum these past two years.

“Tenants with 2019 lease expiry dates and their landlords should ensure they seek advice to understand and keep up with this dynamic marketplace.”

Mr Rasmussen predicted that despite the recent sharp increases to rental rates, the higher base would become the new normal, “as Melbourne finally starts to catch up with other Australian capital city rents”.


PCA data showed the Brisbane CBD’s office vacancy rate lead the national drop in office vacancy, falling 170 basis points in the latter half of 2018, to 13.0 per cent, which exceeded market expectations.

Recent leasing activity suggests there will be greater movement in the vacancy rate in the first half of 2019, with several large leasing deals currently underway. 

“Leasing activity in the CBD is often restricted by the proximity of the city’s fringe office market, allowing occupiers to move easily between the two precincts, though similar rents and incentives are providing the impetus for occupiers to look for space in the more viable CBD,” Ms Mallik said. 

“Complementary development activity in the form of Queens Wharf, has really brought the CBD to life, and the wellness movement that has taken off recently is also aiding occupier moves into the city.”

Savills Office Leasing manager, Daniel Boyes, confirmed that Brisbane’s leasing enquiry had continued to strengthen on the back of the downward trend in vacancy.

“The CBD has seen several new additions with WeWork, Hub and various other groups absorbing large portions of space,” he said.

“Demand for smaller fitted suites has also seen consistent growth despite a significant increase in supply.” 

Mr Boyes went on to say that the Brisbane CBD hosted “a healthy mix” of tenants and was not as skewed towards the mining industry as the media was suggesting.

“Throughout the past 12 months, we have actually seen several lessees from the finance and insurance industries capitalise on low rents and relatively high incentives to recentralise into the CBD,” he said.

“That said, we will see continued growth and demand from coal miners, along with the state government, two sectors we have identified as major growth occupiers in 2019.” 

Key lease deals in 2018 included Suncorp for 39,600sqm at 80 Ann Street; Deloitte for 8,000sqm at 123 Eagle Street; the state government for 5,319sqm Capital Hill; and Sonic Healthcare for 2,138sqm at 545 Queen Street.


In Perth, PCA data showed the CBD office vacancy rate falling 90 basis points to 18.5 per cent in the six-month period to December 2018, with leasing activity showing an uplift, and recentralisation a recurring theme among occupiers. 

“In 2018, we saw just under 70,000sqm (for space greater than 1,000sqm) of leasing volume recorded, which was up from the year prior,” Ms Mallik said.

“We are likely to see leasing volumes continue to be supported by the recentralisation trend, as lessees look to capitalise on record low rents and relatively high incentives. 

“Perth is similar to Brisbane, in that we are seeing the city come alive with complementary development activity, most notably in the form of Elizabeth Quay. 

“Infrastructure activity is also pushing this story, with Perth City Link aiding connectivity to the CBD.”

Savills national head of Office Leasing, Graham Postma, said the significant decline in vacancy was “a direct result of the key trends of 2018 – recentralisation to the CBD and the flight to quality”.  

“This is clearly evidenced by the divergence in direction of the premium and A-grade vacancy, both of which are declining, compared to Sydney levels in the case of premium stock, while lower-grade stock continues to increase,” he said.

Perth has long been known as the mining capital of Australia, with Ms Mallik saying the mining resurgence was underpinning the CBD leasing market.

“In 2018, almost half of the total leasing volume was to tenants from the mining and utilities industry,” she said.

Key lease deals included Wood Group for 9,198sqm at 240 St Georges Terrace; the Department of Human Services for a combined 13,037sqm across two deals at 556 Wellington Street and 226 Adelaide Terrace; Minter Ellison for 3,440sqm at 77 St Georges Terrace; and Macquarie Bank for 3,311sqm at 240 St Georges Terrace.


Adelaide’s CBD office market experienced a vacancy rate fall of 50 basis points to 14.2 per cent in the latter half of 2018, with leasing volumes recording a significant increase on 2017, and more than 30,000sqm (for space greater than 1,000sqm) of leasing transactions recorded in Savills research.

The city is at a turning point, with prospects for growth notably greater this year, according to SA director for Office Leasing, Adam Hartley.

“This contraction is likely to continue in response to office relocations in the first quarter of 2019,” he said.

“Interestingly, the vacancy rate for prime-grade office space will contract the most, with the majority of office vacancy available in secondary-grade accommodation.

“The contraction will swing the balance towards a lessor market, which in turn will reduce incentive rates in high B-grade and A-grade office buildings.”

Mr Hartley said recent record-breaking transactions showcased the desire of several major international companies to establish a footprint in Adelaide. 

“Suncorp taking up 4,660sqm of space and building signage rights at 1 King William Street represented Adelaide’s largest net-lettable-area deal to date,” he said.

Mr Hartley went on to say that the entrance of global post-production effects company, Technicolor, into Adelaide at 178 North Terrace was another internationally successful outcome that reinforced South Australia’s position on the world map.   

“The Technicolor win for South Australia was the largest office accommodation tenant attracted to Adelaide, which will in turn employ up to 400 new staff,” he said.


Canberra had the second-largest drop in its vacancy rate in 2018, falling 140 basis points to 11.0 per cent between June and December, which was largely driven by a withdrawal of stock. 

That said, prime-grade vacancy in city-fringe precincts like Barton were already at record low levels, with limited options for tenants to move around, according to ACT director for Office Leasing, Pip Doogan

“We have seen demand shift from larger office spaces to smaller occupiers in the 250sqm to 500sqm market, making up the majority of the lease transactions across Canberra throughout the past six months,” she said.

“Spec fit-outs are proving to be the favorable option for tenants who are considering a move.”   

Ms Doogan said that Canberra “hasn’t really moved throughout the past 12 months” in regards to rents or incentives across all markets.

“Looking forward, we cannot see that it will shift in the next six months, especially with an election this year and the likelihood of a change in government,” she said.

“Private sectors are still floating around but the majority of the deals are being done in the sub-1,000sqm market.”

Savills is a leading global real estate service provider offering the full spectrum of services from strategic advice to managing assets and projects and transacting deals. For further information, please feel free to reach out to any of our Office Leasing agents or Savills Director of Research & Consultancy Shrabastee Mallik. To learn more about Savills, visit

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