Office Market Report July PDF Free Download

Office Market Report July 2014

Australian Non CBD vacancy is less than that of the CBD for this first time since January 2001 Australian CBD v Non CBD Vacancy July 1990 to July 2014 25% Australian CBD Australian Non CBD 20% 15% 10.4% 10.7% 10% 5% 10.6% 0% 10.4% Jul 90 Jul 91 Jul 92 Jul 93 Jul 94 Jul 95 Jul 96 Jul 97 Jul 98 Jul 99 Jul 00 Jul 01 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14 Source: Property Council of Australia 1

Australian CBD vacancy increased mainly due to supply, while Non CBD vacancy decreased due to stronger demand Net Australian CBD and Non CBD Vacancy Attribution Six months to July 2014 14% 12% 10% 10.4% 10.6% 0.6% 0.9% 0.4% 0.8% 0.1% 0.3% 10.7% 10.4% 8% 6% 4% 2% Australian CBD Australian Non CBD 0% Vacancy Jan 2014 Office Supply Withdrawals Net Tenant Demand Vacancy Jul 2014 Source: Property Council of Australia 2

Sydney and Melbourne CBD were the only capital city markets to record vacancy below 10 percent CBD & Non CBD Vacancy Rates July 2014 16% 14% 12% 10% 8% 6% 4% 2% 0% Australian Office Vacancy East Melbourne Chermside Parramatta Southbank Sydney CBD Melbourne CBD West Perth Adelaide Fringe North Sydney Chatswood St Kilda Road North Ryde Perth CBD Brisbane Fringe Upper Mt Gravatt & Macgregor Crows Nest/St Leonards Canberra Adelaide CBD Brisbane CBD Gold Coast Source: Property Council of Australia 3

Most of the declines in vacancy were in the Non CBD markets Vacancy Change Six months to July 2014 4% 3% 2% 1% 0% 1% 2% 3% 4% East Melbourne Chatswood Gold Coast Chermside Crows Nest/ St Leonards Sydney CBD Brisbane Fringe St Kilda Road North Sydney Melbourne CBD Australian Non CBD Southbank West Perth Australia Australian CBD Brisbane CBD Parramatta Canberra Adelaide CBD North Ryde Adelaide Fringe Perth CBD Upper Mt Gravatt & Macgregor Source: Property Council of Australia 4

Sydney CBD recorded the lowest vacancy rate, Brisbane CBD the highest CBD Vacancy Change Six months to January 2014 and July 2014 16% 14% 12% Jan 14 Jul 14 11.8% 13.6% 13.8% 12.9% 12.4% 14.2% 14.7% 10% 8% 9.0% 8.7% 9.0% 8.4% 8.5% 6% 4% 2% 0% Sydney CBD Melbourne CBD Perth CBD Canberra Adelaide CBD Brisbane CBD 5 Source: Property Council of Australia

Melbourne and Sydney CBD were the only capitals to record positive demand over the last six months Net CBD Demand Six months to January 2014 and July 2014 50,000 40,000 Historical Average 6 months to Jan 14 6 months to Jul 14 30,000 20,000 sqm 10,000 0 10,000 20,000 30,000 40,000 Melbourne CBD Sydney CBD Canberra Brisbane CBD Adelaide CBD Perth CBD 6 Source: Property Council of Australia

Supply was the highest in Canberra, demand the weakest in Perth CBD Net CBD Supply v Demand Six months to July 2014 1.0% 0.5% 0.6% 0.7% 0.5% 0.9% 0.5% 0.5% 0.0% 0.5% 0.1% 0.0% 0.0% 0.4% 1.0% 0.9% 1.5% 2.0% Net Supply Rate Net Demand Rate 2.5% Melbourne CBD Sydney CBD Canberra Brisbane CBD Adelaide CBD Perth CBD 2.3% *Demand rate = Change in Occupied Stock / Previous Stock 7 Source: Property Council of Australia

Vacancy of secondary stock in Perth CBD is more than three times the prime vacancy CBD Vacancy Rate Prime vs Secondary July 2014 30% 25% Prime Secondary 20% 15% 10% 5% 0% Canberra Melbourne CBD Perth CBD Sydney CBD Adelaide CBD Brisbane CBD 8 Source: Property Council of Australia

Brisbane CBD, Perth CBD and Canberra recorded sublease vacancy more than double their historical average CBD Sublease Vacancy January 2014 and July 2014 60,000 50,000 2.6% 2.7% Historical Average (sqm) Jan 14 Jul 14 40,000 1.5% 0.8% sqm 30,000 0.5% 20,000 1.3% 10,000 0 Brisbane CBD Perth CBD Canberra Melbourne CBD Sydney CBD Adelaide CBD 9 Source: Property Council of Australia

Brisbane & Perth CBD sublease vacancy are at historic highs Brisbane CBD v Perth CBD v Sydney CBD Sublease Vacancy: July 2000 to July 2014 3.0% 2.5% Brisbane CBD Perth CBD Sydney CBD 2.0% 1.5% 1.0% 0.5% 0.0% Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Source: Property Council of Australia 10

Australian CBD Six Monthly Gross Supply January 1990 to July 2017 600,000 Supply Additions Projected Supply Historical Average 500,000 400,000 300,000 200,000 100,000 0 Jan 90 Jul 90 Jan 91 Jul 91 Jan 92 Jul 92 Jan 93 Jul 93 Jan 94 Jul 94 Jan 95 Jul 95 Jan 96 Jul 96 Jan 97 Jul 97 Jan 98 Jul 98 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 sqm Source: Property Council of Australia 11

Over the next 3.5 years, more than 1.1 million sqm of stock will be supplied to the Australian CBD market Future Supply of CBD markets 2014 to 2017 500,000 400,000 2014 2015 2016 2017 sqm 300,000 200,000 100,000 0 Sydney CBD Melbourne CBD Brisbane CBD Perth CBD Canberra Adelaide CBD % of Current Stock 8.5% 5.9% 8.8% 10.4% 2.4% 2.8% Pre Commitment 51% 35% 42% 48% 17% 72% Source: Property Council of Australia 12

Three of the six worst performing Non CBD markets by net absorption (sqm) are in NSW Non CBD Demand Six months to July 2014 20,000 15,000 Historical Average Jul 14 10,000 5,000 0 5,000 10,000 Brisbane Fringe Chatswood Gold Coast St Kilda Road Crows Nest/St Leonards West Perth Chermside East Melbourne Parramatta Upper Mt Gravatt & Macgregor North Ryde Adelaide Fringe Southbank North Sydney sqm Source: Property Council of Australia 13

Australian Non CBD Six Monthly Gross Supply January 1990 to July 2017 350,000 Supply Additions Projection Historical Average 300,000 250,000 200,000 150,000 100,000 50,000 0 Jan 90 Jul 90 Jan 91 Jul 91 Jan 92 Jul 92 Jan 93 Jul 93 Jan 94 Jul 94 Jan 95 Jul 95 Jan 96 Jul 96 Jan 97 Jul 97 Jan 98 Jul 98 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 sqm Source: Property Council of Australia 14

NSW Office Markets 15

Sydney CBD vacancy remains below historical average for the fifth consecutive period Sydney CBD Direct v Sublease Vacancy Rates January 1990 to July 2014 25% Sublease Vacancy Direct Vacancy Historical Average 20% 15% 10% 5% 0% Jan 90 Jul 90 Jan 91 Jul 91 Jan 92 Jul 92 Jan 93 Jul 93 Jan 94 Jul 94 Jan 95 Jul 95 Jan 96 Jul 96 Jan 97 Jul 97 Jan 98 Jul 98 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Source: Property Council of Australia 16

Both Sydney CBD demand and vacancy rates declined in the six months to July 2014 Sydney CBD Demand v Vacancy July 1990 to July 2014 25% 20% 15% 10% 5% 0% 5% 10% 6 month Demand Rate (RHS) Total Vacancy Rate (LHS) 5% 4% 3% 2% 1% 0% 1% 2% 15% 3% Jul 90 Jul 91 Jul 92 Jul 93 Jul 94 Jul 95 Jul 96 Jul 97 Jul 98 Jul 99 Jul 00 Jul 01 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14 *Demand rate = Change in Occupied Stock / Previous Stock Source: Property Council of Australia 17

Sydney CBD s decrease in vacancy was mainly due to tenant demand Net Sydney CBD Vacancy Attribution Six months to July 2014 10% 9.0% 0.6% 0.7% 8% 0.5% 8.4% 6% 4% 2% Reduction to Vacancy Addition to Vacancy 0% Vacancy January 2014 Additional Office Supply Withdrawals Tenant Demand Vacancy July 2014 Source: Property Council of Australia 18

All Sydney CBD grades experienced a decrease in vacancy, except D Grade stock Sydney CBD Vacancy by Grade January 2014 and July 2014 180,000 160,000 9.5% Historical Average Jan 14 Jul 14 140,000 120,000 7.6% sqm 100,000 80,000 60,000 40,000 20,000 8.2% 7.1% 7.9% 0 Premium A B C D 19 Source: Property Council of Australia

Recovery from the GFC has been significantly weaker than previous downturns Sydney CBD Historical Demand Growth July 1990 to July 2014 3 Year Growth Average Six Monthly Demand (sqm) Post 1990 s Recession 72,760 Post Dot Com Crash 78,224 Post Global Financial Crisis 28,022 200,000 150,000 100,000 50,000 0 50,000 100,000 150,000 Jul 90 Jul 91 Jul 92 Jul 93 Jul 94 Jul 95 Jul 96 Jul 97 Jul 98 Jul 99 Jul 00 Jul 01 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14 sqm 20 Source: Property Council of Australia

Sydney CBD Six Monthly Gross Supply January 1990 to July 2017 250,000 Supply Additions Projection Historical Average 200,000 150,000 100,000 50,000 0 Jan 90 Jul 90 Jan 91 Jul 91 Jan 92 Jul 92 Jan 93 Jul 93 Jan 94 Jul 94 Jan 95 Jul 95 Jan 96 Jul 96 Jan 97 Jul 97 Jan 98 Jul 98 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 sqm Major Projects 2015 Q4 Tower 2, International Towers Sydney 87,500sqm 2015 Q4 Tower 3, International Towers Sydney 78,000sqm Source: Property Council of Australia 21

Parramatta, despite an increase in vacancy, continues to record the lowest vacancy of the NSW markets Sydney Non CBD Markets Total Vacancy January 2014 and July 2014 16% 14% Historical Average Jan 14 Jul 14 12.9% 12% 10% 8% 6% 6.7% 8.4% 10.2% 10.8% 11.2% 4% 2% 0% Parramatta Sydney CBD North Sydney Chatswood North Ryde Crows Nest/St Leonards 22 Source: Property Council of Australia

Chatswood experienced the largest demand over the six months to July 2014 Sydney Non CBD Markets Six Month Demand Rates January 2014 and July 2014 5% 4% 3% 4.0% Historical Average Jan 14 Jul 14 2.8% 2% 1% 0% 1% 2% 3% 4% 0.8% 0.7% 1.1% 0.7% 0.2% 0.4% 0.6% 0.5% 3.2% Chatswood 2.0% Crows Nest/St Leonards 0.5% 0.4% 0.4% 0.1% 1.1% 0.7% Sydney CBD Parramatta North Ryde North Sydney *Demand rate = Change in Occupied Stock / Previous Stock Source: Property Council of Australia 23

NSW remains the most confident market in terms of office capital growth expectations Office Capital Twelve Month Growth Expectations Index 10 5 Price growth expectations index (net balance) 0 5 10 15 20 25 30 Dec 13 Qtr Sept 14 Qtr 35 NSW VIC AUS SA QLD WA ACT Source: Property Council of Australia / ANZ Property Industry Confidence Survey 24

Property Council Research National Research Team John Nguyen National Research Manager jnguyen@propertyoz.com.au Kristina Mastrullo Research Analyst kmastrullo@propertyoz.com.au Ryan Farrow Research Analyst rfarrow@propertyoz.com.au Lauren Hetherington Information Analyst lhetherington@propertyoz.com.au Irving Quach Information Analyst iquach@propertyoz.com.au Nathan Guo Information Analyst nguo@propertyoz.com.au Disclaimer While the material contained in this publication is based on information which the Property Council of Australia (including its Directors, officers, employees and agents) understands to be reliable, its accuracy and completeness cannot be guaranteed. This publication is general and does not take into account the particular circumstances or needs of any person who may read it. You should obtain independent advice from suitably qualified consultants and professionals before making any decisions in relation to the contents of this publication. The Property Council of Australia is not liable and accepts no responsibility for any claim, loss or damage of whatever nature suffered by any person or corporation who relies or seeks to rely on any information, advice or opinion contained in this publication, or otherwise given by the Property Council of Australia. Copyright This publication is copyright. The Property Council of Australia is the copyright owner. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic or otherwise, without the permission of the copyright owner. 25