Australian office net absorption hits highest levels since 2018

Sydney and Melbourne recorded 24,700sqm and 24,070sqm of absorption in Q3, respectively.

Despite persistent lockdowns across Australia, the office markets in major CBS still recorded healthy leasing activity. According to Dexus Research, net absorption was positive in Sydney CBD and the Melbourne CBD in Q3 2021 recording 24,700 square metres and 24,070 square metres respectively, the highest since 2018. 

“The improving demand came on the back of expansions and centralisations into CBDs as well as a gradual reduction in sub-lease space,” it adds.

Here’s more from Dexus Research:

There are signs white-collar businesses are confident and hiring again. After a dip at the beginning of the Delta lockdown (June), business confidence rebounded strongly in September to +13, the second highest reading on record. Similarly, professional job advertisements indicate sustained hiring intentions. White-collar industries continued to outperform other sectors, with payroll jobs 3.6% higher than pre-pandemic levels.

Vacancy rates across CBD markets have started to stabilise. Total vacancy fell marginally across all CBD markets except for Melbourne in Q3, with Perth recording the sharpest fall of 60bps. 

While face rents have remained stable across office markets nationally, incentives have risen, leading to further falls in effective rents. Melbourne CBD recorded the sharpest fall in net effective rents in the September quarter (-3.8%), followed by Sydney CBD (-2.7%), Brisbane CBD (-1.7%) and North Sydney (-1.3%). Despite strong demand, there will need to be further falls in vacancy rates towards average levels before we see any material improvements in rents and incentives. Elevated supply levels in some markets are likely to delay the recovery path for rents. 

The vaccine roll-out will allow for a relaxation of mobility restrictions over the next few months, which should aid the return to office thematic. We need to be realistic about the pace at which workers return to CBDs given ongoing risks with infection rates, regulations on mask wearing, and the administrative difficulty of managing workforces.