Property Forecasting > Research Briefing

Historical perspective on Australian office downturns

The economic fallout from COVID-19 has contributed to significant strain being placed on commercial property. At this stage, the depth of the setback to offices remains highly uncertain and is likely to vary across cities. Understanding the experience of previous commercial property downturns may help to clarify where vulnerabilities lie in the current crisis.

In studying three Australian economic crises of different magnitudes, we can shed some light on the possible scale and evolution of the current crisis for Australian office markets. An important common vulnerability amongst the cities that suffered the most severe contractions from each crisis is substantial increases in office stock (especially when associated with a severe and concurrent demand shock). This indicates to us that Sydney and Melbourne will be most exposed by the current crisis due to their large supply pipelines, and we forecast that they will suffer the largest declines in stand-alone office workforce (SAOWF) of the major capital cities. To place this in context, we expect the severity of the shock to be substantial, exceeding that of the GFC and Tech-bubble, but falling short of the 1990s recession. However, we stress that risks are skewed to the downside, as uncertainty remains elevated.​

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