In late 2015 many thought the Sydney CBD office vacancy rate would reach 10% by the end of 2016. Since the beginning of 2016 many have been forecasting the Sydney CBD vacancy rate would plummet. One prediction was 3% by the end of 2017. JLL in its Q2 2016 vacancy report states the vacancy rate was 7.1%. The latest prediction from another firm was 4% for the middle of 2016. That is a 3% variance or close to 150,000 m2.
Why the massive difference?
A consistent methodology over a long period of time is the only way to analyse a long term slow moving product like office space. Since 1990 the Property Council of Australia has been releasing office vacancy figures for major office markets around the country. It has been doing so at the end and middle of the year. The PCA engages the assistance of the commercial real estate community meaning the figures should be reliable.
The PCA’s methodology counts occupied space rather than leased space. This methodology is used around the world and provides a realistic reflection of the market at any given time. It is the most effective way to highlight true demand (positive or negative net absorption) by measuring the amount of occupied space from one period to the next. As a result, if office space is leased but unoccupied then the unoccupied space should show up in the vacancy figures – sublease or direct. This methodology brings out that hidden vacancy that is always present in any office market.
To highlight this, if a large tenant (say 20,000 m2) moves to similar sized space in July (just after a survey date), how should the space be counted? Using the methodology from around the world, the old space is occupied at the time of the survey, the new space is vacant / unoccupied, and the true net absorption of the move (positive or negative) would only be reflected in the next survey period – because the move took place just after the last survey period.
Some would disagree with this and say that both 20,000 m2 spaces were leased. This does not necessarily distort the figures but delays the inevitable – the space (20,000 m2 or 0.5%) has to be counted sometime.
The point is, the PCA 6 monthly survey is objective and usable by all market participants. It is not there to suit one party or another. It is there to provide a consistent snapshot of the market at a particular point in time. In the end the market is the market.
With the latest figures coming out 4 August it will be interesting to see what the PCA figures will reveal. Is the Sydney CBD office vacancy plummeting, decreasing, flat or even increasing?
To stay informed on Sydney CBD market analysis and more, don’t forget to subscribe to our mailing list to receive updates when new insights are posted to Corporate Property Matters.