Office vacancies rise

The rise in office leasing vacancies in Sydney is expected to continue for at least another few months, after which conditions should start to improve in tandem with the outlook for the economy, say agents.

The potential conversion of a number of older properties across the city into apartments, including 34 Hunter Street (pictured), will help reduce the office vacancy levels.

But in the interim and while national vacancy hits 11.3 per cent, the highest in 14 years, the sector is considered the least preferred for many analysts.

The senior analyst, property, at Morningstar, Tony Sherlock, said vacancy rates were already elevated in the central business districts of the major cities and this was likely to get worse because of a combination of new supply, more efficient workplaces, muted white-collar employment growth and likely reductions in the public sector.

"We suspect weak conditions in low-grade property will inevitably have a flow-on effect to prime grade, particularly when vacated lower-grade property is refurbished.

"While increased supply should negatively pressure prime-grade rents, the negative effect of these refurbished assets, known as backfill space, is expected to be greatest for remaining lower-grade assets."

Despite higher vacancies, the head of office leasing, Australia & NSW, at Jones Lang LaSalle, Tim O'Connor, said business confidence had rebounded since the federal election, as shown in unchanged sub-let space conditions.

"Nevertheless, Jones Lang LaSalle recorded 315,000 square metres of sub-lease space across CBD office markets, equating to 1.88 per cent of total stock," he said.

"While office market demand indicators have started to stabilise, corporate Australia remains cautious in committing to new space and lease negotiation times remain elongated compared with historical norms."

The leasing market was expected to remain challenging in 2014, he said, but there were early signs of more inquiries, which would translate into increased leasing activity.

For the workers in the office market, remuneration also remained steady - that is, no one took a pay cut.

The October Avdiev Remuneration Report found that business conditions had remained stable overall.

The survey was Australia wide and covered property, investment and construction employer companies.

The managing director of Avdiev, Rita Avdiev, said there was substantial variation between market sectors, with the capital market end of the property food chain being the most positive, and property consultants faring the worst.

"Retaining staff was reported as a high priority, with only 24 per cent of contributor companies uncertain of their ability to retain staff at current levels," Ms Avdiev said.