“National office market downturn” in 2024—why this is just not true

Headlines are declaring a downturn in the nation’s office market. While this is true of some of Australia’s markets, it’s not true for all of them. 

Some reports estimate that as much as 90 per cent of news stories focus on negative topics, events and opinions. As serial newspaper page turners, we’re inclined to agree. Which is why seeing terms like “national office market downturn” in our news is unsurprising—and also untrue.

Why the negative office market press?

The Australian Financial Review, using data from MSCI, recently reported that unlisted property funds are feeling the pinch of a turmoil-filled commercial property market, with fledgling office assets sending fund returns plunging by 12.7 per cent in 2023.

The article highlights that recent office tower deals are being struck at prices around 20 per cent below peak value, indicating the extent of the correction.

Why do we have a problem with this?

The AFR blames commercial real estate’s illiquidity (an element of commercial property investment we actually view as a benefit) for the delayed repricing of the market. And it uses narrow data from both anecdotal and region-specific sources to support its claim.

A Brisbane office tower, once valued at $160 million, is seeing offers for half that value, giving experts a much needed indicator of how the market is performing. They’ve unfortunately applied that anecdotal evidence to the entire country.

And further, in their research, MSCI uses the returns from unlisted property funds that typically invest in east coast markets (i.e. assets in their own backyard). They are not necessarily reflective of unlisted property trusts or the office market across the entire nation.

“National” doesn’t always mean national

We don’t actually have a problem with the AFR’s information—when it’s applied to the correct regions.

Because “national” does not mean national; not in every respect.

If you’ve read the aforementioned AFR article, you’ll notice that there is a locality missing from its claims: Perth.

Perth’s office market is heating up, and will potentially see value growth not witnessed in decades. It’s far from a downturn, which is what popular headlines might have investors believe.

Why Perth’s office market is bucking the trend

Limited supply

In 2023, the market experienced a significant influx of new office space, with a solid 79,000 square metres of pre-committed supply (the highest annual addition since 2015). But despite concerns about potential oversupply, a closer look shows that approximately 80 per cent of this new supply is already pre-committed, minimising its impact on the market.

And even more astonishing for those hooked on the “national office downturn” prognosis, there is no scheduled supply for the Perth CBD office market in 2024, which seriously brightens the outlook for investors.

Buoyant demand

Knight Frank research tips a decline in the vacancy rate to around 12 per cent by 2026, from its current level of around 15.6 per cent. That prospect alone is drawing investor interest, particularly as tenant enquiries surge and leasing activity remains robust.

And those enquiries have indeed surged. A record 226,000 square metres of leasing enquiry was recorded in the first six months of 2023, nearly matching the entire volume for the previous year.

A robust economy

The trajectory of growth in the Perth office market mirrors previous periods of significant expansion; the breadcrumbs of a promising future. Outstanding economic conditions in WA sets it apart from its eastern counterparts, so it’s no surprise investor confidence in the Perth office market is steadily growing.

Does it sound like the national office market is experiencing a downturn? On the east coast, sure. But the west—as it does so frequently—runs its own race.