Real Estate

Highlights and key performers in the Australian office market 

By Luke Briscoe
Managing Director - Office & Logistics Sydney, Australia

With another quarter behind us, we comment on a number of key themes playing out in the office market in Australia, with some standouts making their way to the front.

Vacancy rates are at record lows in both Sydney and Melbourne, both hovering at or below four per cent1. While there are similarities across the markets, the drivers of their vacancy rates do vary.

In Sydney, the low vacancy is being driven by ‘good’ demand, but with a significant influence by the withdrawal of stock – whether it be for apartments, hotels or refurbishments.

On the other hand, with Melbourne the low vacancy is primarily being driven by very strong demand, and limited supply.

These differing factors are ensuring that both markets continue to see growing effective rentals.

In resources markets, like Perth and Brisbane, there are interesting themes forming in the second half of the year.

For example, in Perth, if you are looking for prime grade, contiguous office accommodation – 3000 square metres or above – there are very limited options. However, there remains an abundance of lower quality and smaller tranches of space and suites. We see this as a good sign for the market and expect to see stronger performance in the well-positioned prime assets.

Brisbane is also now starting to show sustained signs of growth. Rental growth is improving, above 5 per cent2  year on year for prime assets, driven by strong interstate migration and population growth of nearly 2 per cent3, the second highest rate in Australia. This is a turnaround from the last five to six years, when there was an influx of new-builds hitting the market, which led to high vacancies during that period of time. Those empty spaces are now starting to fill, signalling that demand is on the increase. Equally, supply is reducing. On that basis, we expect to see continued growth over the next few years.

The importance of ongoing investment

Real estate markets are cyclical, and it’s important to be across the ups and downs as they occur. However, what requires an ongoing and steady focus is continuous investment in buildings by both owners and managers, irrespective of whether the market is hot or not.

There have been many examples of where a market is strong, but for those landlords who have not properly invested in their assets, there can be a real scramble to reposition when the market does turn.

At AMP Capital, we take a very clear and prudent approach, ensuring that the assets we manage on behalf of our clients are well positioned at all times, strategically investing in capital upgrades through the cycles. By investing in the assets we manage, we keep our current and prospective customers happy, and can be ready for what lies ahead.

This is one of many important factors which plays a part in successful investing in the Australian office market, and holds true irrespective of market conditions, challenges and opportunities.

1Source: Property Council of Australia Office Market Report, July 2019
2Source: JLL REIS
3Source: Deloitte Access Economics

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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