The office market is experiencing a flight to quality

The shift to remote working has reduced demand for office space and affected how businesses interact with their workspaces, according to Ray White Commercial Head of Research Vanessa Rader.

“Some businesses look to downsize their spaces and perhaps sub-lease, while others have reconfigured the working environment to provide flexibility and collaboration, or relocated to new premises to lure staff back in,” she said.

This trend has played out in markets throughout the world, with vacancy rates reaching 15% in Toronto and 20% in New York, for example. In some markets, though, such as Tokyo and Hong Kong, vacancies have been falling.

“For many of these markets the increase in net absorption signals a move back to a more normalised market, led by prime stock,” Ms Rader said. 

“The flight to quality internationally is real, with prime leasing deals representing as much as three-quarters of all transactions, improving vacancies across the premium and A-grade end of town in some markets.”

 

Absorption rates and vacancy rates

Data from Ray White and PCA shows that Australian buyers and tenants are increasingly favouring quality assets.

This becomes clear when you compare absorption rates (which refers to how much empty office space is finding tenants) for the prime office sector (new or fully refurbished offices) and the secondary office sector (lower-quality offices).

Over the past 12 months, absorption rates have been greater for the prime office sector than the secondary office sector (or, in the case of Melbourne, the prime contraction has been less than the secondary contraction).

 

Absorption rates:

  • Sydney CBD = 30,873sqm prime, -90,784sqm secondary.
  • Melbourne CBD = -9,870sqm prime, -73,136sqm secondary.
  • Brisbane CBD = 52,543sqm prime, 18,457sqm secondary.
  • Perth CBD = 20,802sqm prime, 8,577sqm secondary.
  • Adelaide CBD = 19,606sqm prime, -13,322sqm secondary.
  • Canberra = 12,892sqm prime, -369sqm secondary.
  • Gold Coast = 8,516sqm prime, 3,616sqm secondary.

 

Similarly, vacancy rates for the prime sector are generally lower than the secondary sector:

  • Sydney CBD = 11.4% prime, 11.7% secondary.
  • Melbourne CBD = 14.2% prime, 17.0% secondary.
  • Brisbane CBD = 12.5% prime, 10.4% secondary.
  • Perth CBD = 12.8% prime, 20.3% secondary.
  • Adelaide CBD = 16.8% prime, 17.1% secondary.
  • Canberra = 7.2% prime, 9.8% secondary.
  • Gold Coast = 4.6% prime, 6.7% secondary.

Reach out if you’d like to purchase an office. High vacancy rates mean conditions favour buyers in many parts of the country.


Published: 5/9/2023
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