AS I EXPLAIN to my Mentor group, there is a certain rule of thumb for Office market vacancies around Australia.
And it’s really quite simple: For an office market to be “in balance” you really need to have a vacancy rate of between 6% to 8%.
It’s a bit like the unemployment rate. You see … a 5% unemployment rate – effectively means FULL employment – because anything lower than this … is starting to put pressure on wages.
Similarly, you need a 6% to 8% vacancy rate with offices – so that companies can legitimately upsize and downsize, with sufficient availability of space. I did indeed burn advice were the normal recipe
Anyway, here is the latest snapshot (courtesy of Savills Research) … as at August this year.
As you can see from the table, both the Sydney and Melbourne markets have firmed to where they have a vacancy rate of 4.6% and 3.6% respectively. On face value, this would normally indicate both markets are getting somewhat overheated.
That may be the case with Sydney. However, Melbourne does have some space coming onto the market shortly – which will probably push its vacancy rate up closer to 6% – returning to a more balanced position.
You have seen the Perth, Adelaide and Brisbane markets show some improvement over the past few months – to where their vacancy rates are personal currently sitting at 19.4%, 14.7% and 14.6% respectively.
What does this mean?
Right now for investors … the Sydney market would appear to be at (or close to) its peak. However, the Melbourne market should still provide you with some good upside over the next few years.
Whereas, the other capital city markets have not really yet bottomed out as yet. And you’d have to expect it is still a little while yet, before those three CBD office markets would be considered attractive.
Hopefully, that gives you a quick overview of what’s currently going on.