Perth, Brisbane and Canberra have seen some of the worst vacancy rates on record thanks to an oversupply of office space and ageing assets, the Property Council of Australia’s latest Office Market Report has found. But moves to convert or upgrade underperforming stock could see the fortunes of Australia’s worst performers turn around.
According to Property Council of Australia chief executive Ken Morrison, the biggest beneficiaries of the mining boom – Perth and Brisbane – were the weakest markets, along with Canberra.
“Each of these markets is experiencing weakening demand for office space and higher vacancies, with Brisbane and Perth also set to see substantial amounts of new space added over the next two years,” he said.
The new Queensland government in particular, he said, would have its hands full turning things around and attracting new investment in Brisbane.
Here the vacancy rate hit a record high of 15.6 per cent, with the Queensland division renewing calls for a renewal and conversion program of low-grade buildings.
“Brisbane must begin to consider potential options for conversion and adaptive reuse of older buildings into uses such as student housing, retirement living and hotel accommodation,” PCA Queensland executive director Chris Montford said.
“The Property Council has been heartened by early conversations with Brisbane City Council about how we could work together to tackle this challenge.”
Canberra, too, saw record vacancies of 15.4 per cent, just behind Brisbane.
ACT executive director Catherine Carter blamed supply additions, as well as a glut of undesirable buildings.
“Unfortunately, urban decay is now becoming a feature of our city centre and an issue of serious concern,” she said. “But there is a silver lining.
“The ACT chief minister, Andrew Barr, has already demonstrated a strong vision for Canberra through his commitment to enabling urban renewal in our city and the establishment of a new Urban Renewal portfolio.”
Perth’s vacancy rates were the highest in almost two decades at 14.8 per cent, which PCA WA executive director Joe Lenzo said was in line with expectations.
“The office market in Perth is the barometer for the state’s economy,” he said. “The lack of demand is a reflection of WA’s economic performance.
“At the same time, we are undergoing a spike in CBD office stock with 149,601 square metres due to come online in 2015.”
He called on government to help incentivise office building refurbishment to tackle the problem.
Sydney and Melbourne going strong while Adelaide, Hobart and Darwin stagnate
Sydney and Melbourne, meanwhile, posted strong vacancy figures, while Adelaide, Hobart and Darwin were flat.
PCA chief executive Ken Morrison said the strong results for Sydney and Melbourne reflected the states’ strengthening economies.
“In the Sydney and Melbourne CBDs, businesses are expanding to take up more space, reflecting the stronger economic growth in those states,” Mr Morrison said.
“Sydney recorded the highest demand for new office space in four years, at twice historic levels, and the lowest office vacancy rate of all the capital cities.”
The vacancy rate there has gone from 8.4 per cent to 7.4 per cent in the six months to January 2015, with the premium grade vacancy rate dropping from 8.2 per cent to 7.2 per cent.
For Melbourne, there was a slight increase in the vacancy rate, but according to PCA Victoria executive director Jennifer Cunich, the results are still good taking into account the vast increase in supply.
“The future remains bright for commercial property in Melbourne,” Ms Cunich said.
“A total of 121,335 sq m of new stock is due to enter the market in 2015. In 2016, a further 55,000 sq m will come online with 442,557 sq m mooted for the market.”
Office vacancy in Adelaide decreased slightly, though mainly due to withdrawals. Darwin also decreased slightly while Hobart increased from 7.3 per cent to 8.9 per cent.
Mr Morrison said the results were a reflection of changing economic conditions.
“The picture emerging from the office market is that the two-speed resource boom economy has flipped and fragmented into three very distinct positions – strong, weak and flat,” he said.