The rush for space in central Sydney and Melbourne has helped to drive the national vacancy rate sharply lower to 9.4 per cent.
The figures for the second quarter of 2018, compiled by JLL, show the national vacancy rate has dropped by 1.5 percentage points over the course of the 2017/18 financial year.
Tenants have taken up 90,000 square metres of office space nationally over the quarter and 197,400sq m over the 2017/18 financial year.
“The S&P/ASX 200 has followed an upward trajectory since early 2016 and measures of business confidence show that corporate Australia is relatively positive about the medium-term revenue and profitability outlook,” said JLL’s research head in Australia, Andrew Ballantyne.
“Sydney and Melbourne are more sensitive to financial markets and posted very strong net absorption results in the second quarter of 2018.
“However, the leasing market we are watching very closely is Perth, with net absorption double the historical average over the 2017/18 financial year.”
The Sydney CBD recorded 51,100sq m of space taken up by tenants over the quarter. That squeezed the vacancy rate to 4.5 per cent from 5.5 per cent in the first quarter.
The low vacancy rate is pushing up rents in the Sydney CBD.
Prime gross effective rents increased by 1.6 per cent over the quarter and by 12.5 per cent over the 2017/18 financial year, on JLL figures.
The Melbourne CBD market has also been strong. Some 41,900sq m of office space was taken up in the quarter, with 113,600sq m leased over the 2017/18 financial year.
The CBD vacancy rate in Melbourne also tightened: from 5.4 per cent in the first quarter to 4.6 per cent.
That is the lowest it’s been in almost a decade. Prime gross effective rents in central Melbourne rose by 2.7 per cent over the quarter and by 10.7 per cent over the 2017/18 financial year.
But there may be trouble ahead in Melbourne.
Earlier this month veteran property executive Michael Cook, from Investa, said he was “nervous” that Melbourne’s recent outstanding rates of absorption of around 75,000-100,000 square metres annually may not continue.
“We forecast vacancy rates in Melbourne could rise to as high as 10 per cent, leading to upwards pressure on incentives and downwards pressure on rents,” Mr Cook said.
Even so, vacancy rates in Melbourne and Sydney differ sharply from those in Perth and Brisbane.
Vacancy in the Perth CBD trended lower in the second quarter to 20.9 per cent and is at the lowest level in almost three years after further space was taken up.
However, the divergence between vacancy in Perth’s prime market at 16.2 per cent and its secondary market, at 27.6 per cent, is becoming more stark.
“BHP’s announcement that they will proceed with a new iron ore mine in the Pilbara is positive for sentiment across the Perth CBD,” Mr Ballantyne said.
In the Brisbane CBD the take-up of space was negative, with vacancy increasing to 14.4 per cent.
The negative result was a direct result of Aurizon moving into a new development in Fortitude Valley. Excluding that move though, the take-up of space was positive.