Latest Information on the CBD Office Scene

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LAST WEEK, the Property Council of Australia released its 6-monthly update on the national Office Market to January 2018. And a few interesting things emerged.

The Sydney and Melbourne markets are still well ahead of other capital cities – with both of them enjoying a low 4.6% vacancy rate.

Perth and Brisbane are showing some signs of improvement, although with vacancy rates still rather high … at 19.8% and 16.2% respectively.

However, most capital cities seem to be reporting an increase in tenant enquiry – which bodes well for this year and beyond.

Upcoming Supply

As you can see from the from the next graph, the greatest supply going forward will occur in Sydney and Melbourne – where the vacancy rates are at their lowest.

From previous articles, you’ll recall that you ideally need a vacancy rate hovering somewhere between 6% to 8% – for a CBD office market to be “in balance”. This allows sufficient space for businesses to contract and expand in an orderly manner.

Clearly the Perth, Brisbane and Adelaide markets are currently favouring tenants. Whereas, Sydney and Melbourne are definitely landlords’ markets.

However, when vacancy rates fall below 4% … this starts to create an unhealthy situation – where unwanted speculative development begins to occur.

Fortunately, Melbourne is unlikely to experience that – given the level of planned construction over the next three years.

However, Sydney’s vacancy rate is likely to remain around the 4% mark – and possibly cause its office market to overheat.

Bottom Line: As a commercial property investor, you need to keep a close eye on the markets in which you choose to invest.

Unlike with residential property, the commercial market is principally dictated by the level of supply and demand. And as a prudent investor, you should shy away from markets that are currently languishing; and those likely to overheat.

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