Market trends affecting tenants

Increase in commercial property vacancy in Australia

The Property Council has released its half-yearly Office Market Report, which has revealed an increase in the Australian CBD office vacancy rate in the last six months, from 10.4 per cent in January to 10.7 per cent in July 2014. This means overall in Australia, there is more empty office space. Tenants in capital cities such as Brisbane and Perth will be in a better position for tenancy incentives and more options for space if they are looking to relocate or enter into a new lease.

Decrease in commercial property vacancy in Sydney and Melbourne

The two exceptions to this trend are Sydney and Melbourne, both experiencing increased demand for space and lower vacancy rates. According to the half yearly report, the vacancy rate in Sydney as of July 2014 is 8.4 per cent. For more information on this trend, see this PropertyOz article.

It is important to note that despite this decrease, supply is still in surplus and as such tenants can be enabled with choice and bargaining power.

recent AFR article, reveals that North Sydney is also set to have a decrease in office vacancy, with the vacancy rate predicted to fall below ten per cent for the first time in 2014.

Talking to the AFR, Mr Paul Lynch (JLL’s director of Leasing for North Sydney) has stated, “taking into account lower building vacancy, we expect to see a timely correction in tenant incentives”. As a representative of Landlords and property investors, it is in the interest of commercial real estate companies such as JLL to report on a decrease in incentive they offer tenants, as decrease in tenant incentives will favour their clients. However it is important to note that despite this decrease, supply is still in surplus and as such tenants can be enabled with choice and bargaining power.

Residential conversion in Sydney’s future

TRS reported in April that conversion of CBD offices to residential space is ahead. The recent Property Congress which took place in early September has increased our understanding of what may be ahead for the office market and what impact this will have on tenants.

Speaking at The Property Congress, Vishant Narayan (managing director of Real I.S Australia) stated “anything along Hyde Park, Elizabeth Street will pretty much become a residential apartment building … and there’s going to be about 600,000sqm of B Grade commercial office space taken off the market.” (source: PropertyOz)

If you are a tenant in a building that may be marked for conversion to residential, or you are worried what impact this may have on the demand and price of office space, don’t panic. There will remain a high supply of office space which puts tenants in a powerful position. 

The Property councils half-yearly Office Market Report has stated that high supply is still ahead – “Over the next 18 months 271,075 sqm is projected to enter the Sydney CBD market.”

If you’d like more information on the future of the market, contact us and be empowered with the knowledge of the experts. 

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