Is the office market bruised or defeated?
Despite the positive economic momentum demand conditions across the major CBD office markets, recent lockdowns are limiting economic and leasing activity over the short-term will continue to represent a key risk until vaccination levels are high enough, according to AMP Capital.
During the webinar Luke Dixon, head of real estate research at AMP Capital, said despite the turmoil that the lockdowns were currently presenting for the office market, the earlier experience proved a sharp recovery was still a possibility post-lockdowns.
“From the office perspective we believe the market is bruised with the office occupancy having dropped substantially, particularly with the lockdowns having been imposed in some cases very quickly, and arbitrarily in different office markets around the country,” he said.
“But what we saw coming into COVID-19 from 2020 last year was that the office occupancy throughout the country averaged about 90% and then we saw it drop down to about 60%-65% throughout the peak period of COVID-19 but what we have found out is a very sharp recovery on the back of lockdowns.”
He said that in Melbourne and in other markets which were under hard lockdowns occupancy rates went from close to zero figures to back around 50-60% within a few weeks.
Dixon said it would remain to be seen whether the sub-lease would be a headwind or a tailwind for the market, but sub-lease vacancy market in the Sydney CBD continued to decline as businesses realise they required more office space despite greater workplace flexibility (WFH).
During the first half this year, companies such as EY, KPMG and PWC all withdrew part or all of their sub-lease space in the Sydney CBD.
“Going forward we expect sub-lease vacancy levels to decline further as employment continues to rise,” he said.
According to Dixon, the other thing that might support the office market going forward would be the slowdown in supply.
He said that whilst vacancy levels were expected to remain elevated in the short-term, the deferral and withdrawal of a number of large-scale developments in both Sydney and Melbourne is set to accelerate the recovery over the medium term.
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