Despite COVID-19 numbers dwindling, the uptake in staff returning to CBDs has continued to be slow, albeit improving. A combination of wet and cold weather and an uptick in the flu has been yet another stumbling block for businesses who are seeking to get their staff back in the office on a more permanent basis. For many businesses the quest to have their staff in the office full-time has been fruitless and now look to adapt to a more hybrid working solution with a combination of remote and face to face working.
For major CBDs we have seen the Property Council of Australia occupancy survey show encouraging results, with all CBDs recording an uptick in occupancy levels, but not on a full time basis. ACT has led the charge with occupancy jumping up post election, from 39 per cent in April to 60 per cent in May, while Sydney and Melbourne also improved to result in 55 per cent and 48 per cent respectively. While some of our major CBD locations have been slow to return, the suburbs have recorded encouraging improvements in leasing activity.
Spoken about during COVID-19 was what the “new normal” for the office markets could be; with the “hub and spoke” model often discussed signaling some strengthening of our suburban centres as a support to CBD office markets. As we move through 2022, there are signs of this model coming to fruition as suburban cities such as Parramatta in Sydney’s west record growing signs of interest.
Parramatta as a CBD is home to close to one million square metres of quality office space, soon to overtake other Sydney suburban markets such as Macquarie Park and North Sydney, with recent completions setting new benchmarks to quality for this suburban CBD office market. While vacancy is expected to extend to as much as 15 per cent in the next round of vacancy counts, after dropping to sub 3 per cent in 2019, the future still looks bright for Parramatta. Enquiry levels have grown as businesses look for satellite office locations within easy commutable distance for their staff and Sydney’s west has been identified as a prime location. While enquiry is up, incentives continue to play a role to secure tenants to this location, growing to as much as 40 per cent, which subsides a speculative fit out making a move a cost neutral exercise for most businesses.
While expansion will see a more rapid take up of stock in our CBDs and spoke markets such as Parramatta, we are seeing businesses opting to commit to adequate space without the usual 10-15 per cent expansion space, with businesses foreseeing the hybrid working model is here to stay. We expect to see additional “spokes” added to the model by way of office locations in other regions such as Liverpool and Penrith again catering to the location of staff, transport, connectivity and quality accommodation offerings available.
This is not just a Sydney phenomenon as markets such as Brisbane Fringe, Gold Coast and West Perth also have recorded growing enquiry, capitalising on an easy commute for staff, and affordable, yet attractive accommodation options. This is an interesting time for both the CBD and suburban office markets, which continue to attract strong institutional and overseas investment keeping yields at historic lows despite vacancy levels tipped to remain high over the medium term.