The recent release of the Property Council of Australia’s (PCA) Office Market Report 2018 indicates that Hobart has remained the third strongest office market in the country.
According to the report, Hobart’s CBD office market has a vacancy rate of 8.1%, which is significantly stronger than the national average of 9.6%.
The financial centres of Sydney (4.6%) and Melbourne (4.6%) continue to lead the way whilst the slowdown in mining activity continues to hit the resource dependent markets of Brisbane (16.2%), Perth (19.8%) and Darwin (21.6%).
Hobart’s ‘A’ grade sector makes up approximately half of the stock and continues to be the strongest sector with a vacancy rate of only 6.9%, whilst ‘B’ grade is 10.7%, ‘C’ grade is 9.8% and ‘D’ grade is 7.4%.
Hobart’s CBD office market is dominated by the State and Commonwealth Governments who occupy approximately 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 and has resulted in a number of these older buildings being renovated to a higher standard in a bid to attract new tenants.
In recent years, Hobart’s office stock level has remained relatively static with supply additions (i.e. 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 redevelopment.
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 redevelopment was completed.
This building is occupied by the State Government with a lettable area of approximately 16,275 sqm.
On completion of Stage 2, the development will comprise a mixture of office, hotel, café/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 currently underway and the recent sale of 80 Elizabeth Street, 147 Macquarie Street, and 2-6 Collins Street, which are to be converted to alternative uses, the net gain to the office stock is relatively limited, softening the buildings impact on Hobart’s office market.
The level of office vacancies can generally 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.