Office vacancy rates in Australia’s capital cities have surged 1.8% in the last six months, according to the Australian Property Council, the sharpest half-yearly increase in 17 years.
The data comes as 50 major office projects are said to be indefinitely delayed.
All capital cities excluding Adelaide saw vacancy rates rise in the half-year to January. CBD office markets saw a collective rise in the vacancy rate to 5%, up from 3.4% in July 2008.
The high vacancy rate is mostly due to unusually high supply, as a total of 650,271 square metres of office space was finished in the six months to January, more than 2.5 times the average of 253,688 square metres.
Perth, Hobart and Adelaide are the capital cities with the lowest vacancy rates at 1.3%, 2.8% and 3.4% respectively.
David Green-Morgan, research director at DTZ Research, says the construction sector is being hit hard by the downturn.
“No city is being spared at the moment. Sydney and Melbourne are obviously more exposed to the financial services companies, Brisbane and Perth to the resource sector – both sectors are retrenching people. These rates are just a reflection of that, really.”
Demand for new office space also fell sharply, with net absorption at just 156,171 square metres, down from 199,559 square metres in the half year ending July 2008.
But vacancy rates are tipped to rise, with a further 1.079 million square metres of stock due to be added in 2009 – more than twice the 15-year average of 497,974 square metres.
As vacancy rates rise, projects due to be completed will be postponed. The Property Council says there are at least 50 previously planned projects that have not commenced construction on time.
But Green-Morgan says these projects should eventually come back online.
“I wouldn’t say they’re being scrapped, they’re just being postponed at this stage. It may end up that some of them never happen, but most of them are having their timelines pulled back for six to 12 months. I don’t think we’ll see too much construction in 2009 unless a building has been significantly pre-committed,” he says.
“It’s going to be a slow year for commercial construction. But the advantage Australia has got over other markets is that much of the construction hasn’t actually commenced. Builders and developers have been able to stop construction before it’s started, so the amount of new supply should be limited.”
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Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
