Knight Frank Hobart’s Office Sales and Leasing specialists, Hayden Peck and Richard Steedman, give an update on the Hobart office sector in this month’s feature article.
The recent release of the Property Council of Australia’s (PCA) Office Market Report 2020 indicates Hobart (4.1%) has remained the third strongest capital city office market in the country, now only just behind Melbourne (3.2%) and Sydney (3.9%) with all other markets significantly weaker with Canberra (10.3%), Brisbane (12.7%), Adelaide (14.0%), Darwin (16.8%) and Perth (17.6%).
Hobart’s CBD office market vacancy rate of 4.1% indicates that the market has tightened considerably in recent years, down from 6.0% last year and is significantly stronger than the national average of 8.3%, providing further indicators of Hobart’s strengthening economy. The ‘A’ grade sector is the tightest, with a vacancy rate of only 3.2%, ‘B’ grade 6.3%, with ‘C’ and ‘D’ grade 3.3% and 3.2% respectively.
Net Absorption was recorded at 8,961 sqm for the year (ie increase in area occupied) indicating increased demand/occupancy of office accommodation in Hobart.
This is the highest net tenant demand since 2006.
Historically new supply within Hobart’s market has been demand driven, with new office accommodation primarily resulting from pre-commitment by major tenants with very little speculative development, which has assisted in our market maintaining a low vacancy rate.
A number of older office buildings have been converted to alternative uses resulting in the stock level of 350,456 sqm remaining stable, with the current level very similar to that recorded 10 years ago. This has assisted in maintaining a low vacancy rate.
Improved economic conditions have resulted in greater competition within our market from competing property uses, in particular from the tourism/hotel, education and residential sectors.
This has resulted in an increase in the underlying land value of key sites within our city, rendering some older office buildings and/or their sites to have a higher and better use than offices, such as visitor, residential or student accommodation. As a result, a number of older office buildings have been demolished or converted to alternative uses. This in effect strengthens Hobart’s existing office market stock.
Furthermore, strong economic growth in Tasmania in recent times has resulted in new demand for office accommodation. We have seen a strong increase in demand from small businesses new to our market, with many seeing great opportunity within our confident and growing market. We have also seen new demand from the education sector, particularly Registered Training Organisations (RTO) for international students, with a number of organisations setting up business in Hobart over the past two years. This new education demand has resulted in associated services also opening within the CBD such as immigration and travel agencies and other professional services targeting international students such as lawyers and accountants.
With strong office market fundamentals, Knight Frank has been very successful in selling a number of major office buildings over the past 2 years with prices reflecting a strengthening of core market yields, as a number of new and also established players look for opportunities within our market.