The banking royal commission has created an unexpected shot in the arm to a near-full national office market, with landlords being inundated with calls for extra space.
Demand is coming from the financial services, banking and legal professions, which are having to establish separate compliance and project teams to work through Justice Kenneth Haynes’ recommendations in his report.
The Commonwealth Bank of Australia is in the market for up to 20,000 square metres of office space to quarantine its wealth management business and other companies are expected to follow suit if they have to sell their financial services business.
But finding space will keep agents busy given Sydney and Melbourne, the two largest cities, are sitting at near record low vacancy rates.
According to the Property Council of Australia Office Market Report, for the six months ending January, the Sydney CBD vacancy rate dropped from 4.6 per cent to 4.1 per cent, mainly due to withdrawals from the market.
However, the Sydney CBD holds a higher vacancy rate than Melbourne at 3.2 per cent.
Overall, Australian office vacancy fell by 0.7 per cent in the six months to January
2019 to 8.5 per cent, which is its lowest level since January 2013.
Cameron Williams, national director, office leasing at Colliers International, said in the short term, the Sydney CBD is expected to benefit from the banking royal commission with increased demand for office space from financial institutions, consultants and lawyers dealing with the fallout from new regulatory requirements.
”Changes in the financial industry will create new requirements in 2019/2020 from new entrants to the Australian market, examples may include Resolution Life, AIA and MUFG Trust Bank,” Mr Williams said.
Simon Hunt, Colliers International managing director of office leasing, added that with increased regulations in addition to banks considering split operations, ”we expect the finance industry will record a strong number of transactions over 2019”.
”Our Office Demand Index saw the Finance, IT and Property Services industries recorded over 200 enquiries last year, looking for space, on average, around 740 square metres, and we expect this will continue to grow in the year ahead,” Mr Hunt said.
Ken Morrison, chief executive of the Property Council of Australia, said while their headline vacancy results are similar, the supply and demand dynamics of Sydney and Melbourne are really a tale of two cities.
”Both markets have strong economic fundamentals, but the Melbourne CBD has seen both strong supply of new office space and strong demand for that space. In the Sydney CBD the combination of a net withdrawal of office space and a tight market has left demand nowhere to grow into,” Mr Morrison said.