CBD OFFICE - MARKET REPORT, Q1 Vacancy

With new supply surpassing tenant demand, correspondingly, the Melbourne CBD office vacancy rate continued to increase. According to the Property Council, the total Melbourne CBD office vacancy rate increased to 13.8% as at January 2023, its highest level since January 1999. Despite the rise, the office vacancy rate of the Melbourne CBD remains below those of the Adelaide and Perth CBD office markets. While the vacancy rate of the Hobart CBD office market is Australia’s lowest at 2.5%, only Canberra’s office vacancy rate is also lower than its 10-year average.

Vacancy by Grade

Premium grade office stock was the only grade of Melbourne CBD office space which recorded a fall in its vacancy rate, declining to 9.5% over the six months to January 2023. Despite the positive net absorption of A-grade office stock, A-grade vacancy increased to 13.7% as tenant demand was outstripped by new supply as at January 2023. B-grade office space vacancy surpassed 20% for the first time on record with 220,956sqm currently vacant of which 5,207sqm is via sub lease.

Sub-lease Vacancy

Interestingly, having reached a 28-year high in July 2022, sub-lease vacancy levels appear to have peaked in the short term, falling from 2.6% in July 2022 to 1.9% as at January 2023. While still double its 10-year average, the quantum of sub-lease space of 98,318sqm has fallen to it lowest level since January 2021. Collectively, premium and A-grade office space account for 94% of total sub-lease vacancy across the Melbourne CBD office market as at January 2023.

By precinct, while the majority recorded increases in office vacancy in the six months to January 2023, all precincts now hold vacancy rates above their respective 10-year averages. The Docklands precinct rose to 15.5%, its highest level on record, impacted by tenant relocations. Only the North Eastern and Western Core precinct recorded falls in office vacancies in the six months to January 2023.