PCA Office Vacancy Results: Sentiment strong for 2021

According to Graham Postma, National Head of Office Leasing at Savills Australia, there are a number of consistent themes across the markets, including the flight to quality and tenants focussing on premises with “spec” or existing fit-outs. 

With many tenants delaying long term real estate decisions or electing to take up short term solutions in 2020, activity is expected to be strong throughout 2021.  We have seen a number of transactions concluded already with enquiry and inspections levels increasing in all markets.

The WFH trend will continue to be a major talking point, however there is a strong push by Federal and State Governments along with private sector employers to support a return to working from the office albeit with increased acceptance of flexible working arrangements where appropriate.

NSW Commentary

According to Tom Mott, State Director - Office Leasing - NSW at Savills Australia, the federal and state government as well as other regulatory bodies are driving a push for the return to the office which has a direct impact on sentiment in the office market.

“The leasing market in the early stages of 2021 has begun positively by way of vastly increased inspection volumes, proposal requests and leases in the final stages of being executed that were agreed during December 2020. A more robust assessment of this at the conclusion of the first quarter of 2021 will be interesting.

“Like with previous recoveries there will be and is a flight to quality trend; our clients are continuing to invest in their buildings to ensure they maintain their relevance in the market.

“95% of all leasing deals during 2020 up to 3,000sq m had an existing or new fit-out. We expect that trend to continue throughout 2021 as tenants continue to look for value,” he said.

VIC Commentary

The Melbourne market is off to a flying start in 2021 with steady tenancy enquiry, according to Mark Rasmussen, State Director - VIC Office Leasing at Savills Australia.

“The growing consensus is that business needs to return to the office to drive innovation, service clients and remain competitive.

“Companies shedding space for minimal gain may face unforeseen challenges in the medium term. Whilst the “collateral damage” from COVID-19 will be significant in some sectors, others are strong, and the positive aspects of the market are prevalent.

“Melbourne’s recent new office supply, restructuring in the large local banking sector, pandemic factors, and related education market issues will be notably detrimental to the office market. These factors are balanced by a buoyant economy, new business innovations, buy local preferences and the booming brand Australia.

“We forecast the current high vacancy rates will peak. Tech sector, Professional Services, Government and flexible workspace providers will underpin demand. Transport issues will dissipate with the role out of vaccines. Workplaces will move back to normality before Q3 2021 with a focus on staff health, wellbeing, quality building services and lower densities.

“Strong market activity underpinned by attractive lease incentives and a flight to quality offices will be the hallmarks of 2021 calendar year,” he said.

QLD Commentary

According to David Howson, State Director - QLD at Savills Australia, 2021 has already seen a welcome lift in activity with some positive sentiment returning to the Brisbane Office Leasing market.

“Challenges still remain however with continued uncertainty around “return to work” (as opposed to WFH) and the correlating occupancy rates which underpin significant property decisions.

“As with other states, we have seen positive steps from the State Government in encouraging office workers to “return to work” and we hope to see this trend continue. We anticipate a continued stabilisation of the market with fitted office space still a strong focus, largely due to perceived value and a continuation of the flight to quality seen nationally.”

Mr Howson went on to say that on the back of the uplift in general enquiry and the coincident demand, along with the lack of significant supply (both direct and sublease) we are anticipating vacancy rates to remain largely stable through 2021.

SA Commentary

According to Andrew Ingleton, Director Office Leasing – SA at Savills Australia, market sentiment across South Australia is positive and 2021 will provide opportunity for owners with space which is ready to occupy immediately.

“Commonly, it is good value B grade stock with re-use of existing fit-outs that is being leased, with many of these tenants being local companies, making local decisions.

“The new year has seen a shift toward National companies making leasing enquiries. Short term rollovers during 2020 created latent demand and this will underpin enquiries in the first half of 2021 until the COVID-19 vaccine brings confidence back to the long term market.

“Whole building vacancies at 45 Pirie, 108 Wakefield and 55 Grenfell will create plenty of opportunity for large office space users whilst the state government inspired investment into Space technology at Lot 14 and the Biomedical precinct adjacent the RAH, will stretch the traditional boundaries of the CBD”.

WA Commentary

According to David Evans, Director Office Leasing - WA at Savills Australia, WA’s isolation provided a better environment for uplift in business confidence and increased transactions in the latter half of last year.

“Whilst net face rents will remain stable, competition between attracting new tenants and owners seeking to retain existing tenants should see further pressure on effective rents.

“Vacancies are expected to remain stable with continued CBD centralisation offsetting any increase in the sublease market.

“Demand is mostly lease expiry led with the continuation of the flight to quality trend.

“Small to medium sized occupiers are focusing on the Spec Fit Out market to leverage lower effective rents.

“RTW (Return to Work) is being encouraged and barring any COVID-19 outbreaks, this trend will continue.

“We expect one to two new developments to secure pre-commitments this year. Larger occupiers will continue to seek bespoke fit-outs and flexible COVID-19 appropriate workplace environments.”

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