The landscape of office real estate is undergoing a seismic shift. As of September 2023, the U.S. has hit a historic milestone with a national vacancy rate of 19.6% – the highest we’ve ever seen. This trend surpasses earlier projections and validates the concerns I’ve been raising over the past six months regarding Australian assets and their variations.
The Australian market, while also facing challenges, is weathering the storm with more stability but we need to be cautious this year. Melbourne’s vacancy rate now stands at 16.4%, a modest increase from 14.9%. Sydney’s rate has risen slightly to 12.2% from 11.5% in July 2023. The collective Australian office vacancy rate is at 14.8%, reaching heights not seen since the recovery period of the early ’90s recession.
The ripple effects are clear as U.S. Commercial Real Estate (CRE) office valuations plummet, currently down approximately 40% from their peak. The decline is even more pronounced in older ‘B’ & ‘C’ grade buildings, with a stark example being a historic building in Washington DC selling at an 83% loss, a sobering plummet from its 2011 sale price.
As we observe these developments, it’s crucial for Australian businesses and occupiers to stay informed and prepared. The valuation downturn is a clarion call for proactive measures.
I urge my network, especially those occupying commercial spaces, to open a dialogue about these shifts. Do you recognise the valuation crisis at our doorstep? More importantly, are you equipped with the knowledge to navigate these turbulent waters?
Let’s connect and lead the conversation on strategic real estate management in these unpredictable times.
