The recent release of the Property Council of Australia’s (PCA) Office Market Report 2017 indicates that Hobart has the third strongest office market in the country.
According to the report, Hobart’s CBD office market has a vacancy rate of 8.2 per cent, which is significantly stronger than the national average of 10.5 per cent.
The financial centres of Sydney (6.2 per cent) and Melbourne (6.4 per cent) continue to lead the way while the slowdown in mining activity has hit the resource dependent markets of Brisbane (15.3 per cent), Perth (22.5 per cent) and Darwin (22.5 per cent).
With a net absorption of 1325 sqm, this is the first time in three years Hobart’s office market has recorded positive demand.
Hobart’s “A grade” sector makes up about half the stock and continues to be the strongest sector with a vacancy rate of only 5.7 per cent, while “B grade” is 13.3 per cent, “C grade” is 11.0 per cent and “D grade” is 6.0 per cent.
Hobart’s CBD office market is dominated by the State and Commonwealth Governments who occupy about two thirds of the office stock, predominately in the “A grade” sector.
Recent years has seen many tenants make a flight for quality, moving into higher quality buildings with larger, more efficient floor plans and upgraded building services.
This move has seen a general softening in demand for lower grade/quality buildings.
In recent years, Hobart’s office stock level has remained relatively static with supply additions (ie: new buildings) being offset by stock withdrawals.
As a result of the growth of other property sectors, in particular hospitality, we have seen a number of lower grade office buildings converted to alternative uses or demolished for re-development.
This has assisted in keeping the vacancy rate down, and in effect represents a replenishing of the office market stock.
Historically, new supply has been demand driven, with new office accommodation primarily resulting from pre-commitment by major tenants with very little speculative development.
Given the relatively high cost of commercial construction in Tasmania, economic rentals in excess of current market levels are generally required to justify development, hence future office development is unlikely to occur without substantial pre-commitments.
This provides existing buildings with a competitive advantage and assists in maintaining a low vacancy rate.
During 2017, Stage 1 of the Parliament Square re-development will come online with the completion of the office building fronting Salamanca Place.
This building is to be occupied by the State Government and has a lettable area of about 16,275 sqm.
The development is to comprise a mixture of office, hotel, cafe/restaurant and car parking uses as well as significant public open spaces and is hoped to improve the link between Hobart’s CBD and the Sullivans Cove/Salamanca historic waterfront precinct.
With the demolition of 10 Murray Street and the recent sale of 80 Elizabeth Street which is to be converted to an alternative use, the net gain to the office stock will be relatively limited, softening the building’s impact on Hobart’s office market.
The level of office vacancies can be seen as a proxy for white collar employment, and with renewed economic confidence in Tasmania, this is having a positive impact on Hobart’s office property market.
By Hayden Peck and Richard Steedman.