Demand for CBD office space has remained strong across Australian capital cities, however the addition of new office stock drove the aggregate vacancy rate higher.

Property Council of Australia research found that office tenant demand lifted an average 0.5% across the country’s CBDs.

However, the Australian office market vacancy increased from 12.1% to 12.9% during the period.

Office net absorption reached 55,670 sqm over the six months to July 2022, although the net absorption historic average was 145,790 sqm.

“Demand for office space was strongest in Brisbane at more than three times historic average, with Sydney, Perth and Adelaide also above average, while demand grew by 0.1% in Melbourne and dropped in Canberra by 0.1%,” Property Council Chief Executive Ken Morrison said.

“While the Australian office vacancy increased by 0.8% to 12.9% over the six months to July 2022, it’s new office space that is driving this outcome, not businesses wanting less office space.”

Mark Curtain, CBRE Head of Office Leasing, Pacific, said office users were looking beyond the current economic instability and remained focused on securing quality office solutions that would attract and retain staff for the long term.

“CBRE recorded 203,528 sqm of new 1,000 sqm-plus transactions across the national market in H1 2022 and activity grew exponentially in the past three months – 146,572 sqm in Q2 against 56,956 sqm in Q1 – as the market normalised after the COVID restrictions of late-2021 and early-2022,” Curtain said.

“Face rental growth is emerging as a strong theme in both existing assets and new development stock, albeit with incentives remaining elevated across most Australian markets.

“Escalating building costs are driving increased economic rents for new office construction, while landlords are repricing existing stock as they seek to minimise the impact of the current inflationary environment. Gross face rents have grown nationally by 2.3% year-on-year to June 2022.”

Andrea Roberts, Knight Frank National Head of Leasing, said leasing activity and transactions had continued to increase throughout the first half of 2022, particularly for prime CBD office space.

“Inspection levels in all markets are strong, even when compared to pre-COVID levels of activity,” Roberts said.

“The fact that occupancy levels in each of the CBDs, together with sublease opportunities, have bounced around during 2022 due to a confluence of bad news stories due to floods, excessive rain, strikes, elevated sick leave and a hard school holiday break hasn’t really impacted tenant commitments and transaction levels.

“Occupiers continue to look through these immediate issues to on focus on the need for a quality environment in their workspace longer term.”

Simon Hunt, Managing Director of Office Leasing at Colliers, said flexibility of the workforce was now a given.

“Therefore the focus is not on 100% of the workforce being in the office 100% of the time, but on how the office brings the workforce together to collaborate, promote company culture and how it is utilised to offer a different and beneficial experience to working that cannot be created elsewhere,” Hunt said.

“Occupiers who now feel more comfortable with their current and future workplace strategies are moving forward with leasing decisions.

“This is evident when looking at the continued increase to enquiry levels recorded by Colliers, with a record amount of demand for office space in the first half of 2022. Over 1.622 million sqm of enquiries have been recorded, which is an 11% increase on the prior year.”

PCA’s Morrison said Australia’s CBDs still needed attention despite the office markets proving to be resilient.

“While demand for space is increasing, the number of actual office workers in our city centres is well below pre-pandemic levels and threatens the ecosystem of cafes, restaurants and retailers that help make our CBDs such special places,” Morrison said.

“The recovery in our CBDs needs to be top of mind for governments and businesses even as we deal with elevated levels of COVID-19 in the community.”