The shift to flexible ways of working and using office space was already underway prior to the pandemic with the advent of open plan offices, activity-based working, hot desking and co-working space.
Region: Australia
The major CBD Australian office markets are oversupplied, with double-digit vacancy rates that should be suppressing rental growth. However, historically high incentives are boosting the financial appeal for tenants to move into better quality space when their leases expire, even as stated rents rise in many locations.
The Australian economy is slowing, with tight monetary policy and falling real incomes curbing demand and earlier supply constraints still affecting the realisation of investment projects.
Recession risk has become a hot topic in Australia with GDP growth slowing to just 0.2% q/q in Q1, and a sharp interest rate hiking cycle putting the clamps on growth in a bid to curb inflation.
Oxford Economics Australia was engaged by the Construction, Forestry, Maritime, Mining And Energy Union (CFMEU) to explore the economic case for investing in Australia’s social and affordable housing, potentially funded by revenue from a super profit tax.
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Australia’s rental market tightened considerably in 2022 with rents growing 13.4% y/y nationally. Momentum has continued in 2023, with an increased volume of tenants competing for a relatively static level of supply, contributing to historically low vacancy rates. Moreover, higher interest rates have significantly lifted the mortgage costs for landlords, who are keen to balance their cash flow through higher rental incomings.
The recent blame put on rising company profits as a key driver of consumer price inflation in Australia is overstated. We are not wholly convinced by claims of a causal relationship between profits and inflation as has been widely reported.
