Demand for office space in Australia was double the 20-year average in the first half, the Property Council of Australia said in its Office Market Report today.
About 333,000 square meters (3.6 million square feet) of office space was leased in the six months to July, compared with the 20-year average of 171,000 square meters, the Council said. Still, unusually high levels of supply coming on the market from projects started before the downturn means vacancies haven’t fallen, it said, as more than 570,000 square meters was added over the past six months.
“Despite the positive demand story, the big supply increases and low stock withdrawals have pushed vacancies up to 10 percent,” said Ken Morrison, acting chief executive officer of the Property Council.
Commercial property tenants are becoming more willing to commit to new space as uncertainties about the global financial crisis and Europe’s debt problems abate. As fewer properties are built due to restricted lending during the crisis, supply across Australia will fall to about 328,000 square meters in the second half, the Property Council estimates.
Non-residential building approvals fell in five of the six months to end-June, data from the statistics bureau shows. The Reserve Bank of Australia expects “a tightening in some commercial property markets” if this weakness continues, minutes of the board’s meeting released on July 6 show.
Vacancy rates in Sydney’s central business district will fall to 3.2 percent by 2014, the third dip below 4 percent in 20 years, real estate consultant Colliers International said. It is expected to peak at 8.3 percent next July. Melbourne will fall to 3.3 percent, from a peak of 6.6 percent in January, Colliers forecasts.
“Due to the global financial crisis, we haven’t seen many new developments proceed,” said Simon Hunt, managing director of office leasing at Colliers. While that is now easing, projects started in 2011 won’t be completed for at least three years, he said.