Newly opened buildings have helped almost triple Newcastle's A-grade office vacancy rate in a year, but the Property Council says demand remains strong for high-quality space.
The Property Council of Australia's latest office market report shows Newcastle's A-grade vacancy rate is up from 3.1 to 8.5 per cent since January 2021.
The overall vacancy rate for all grades of office space rose from 7.8 to 10.8 per cent.
This despite a bumper 11,446-square metre net increase in the amount of occupied office space in the city.
This compares with a net loss of 622 square metres in the year to January 2021, a net gain of 5900 the previous year and a net loss of 4500 to January 2019.
Several large new office developments, including DOMA Group's 15,000-square metre Store building and 130 Parry Street, opened last year, raising the overall stock of A-grade space by 20 per cent from 97,800 to 118,300 square metres.
Another 21,000 square metres, including the under-construction Birdwood Business Centre and Darby Plaza, will come online in the next two years.
Property Council Hunter regional director Anita Hugo said the net rise in occupied office space showed demand was significantly higher than the historical average, despite rising vacancy rates.
"We are still unravelling the story that 2021 tells, but it is indicative of the supply of new stock along with changes to space requirements," she said.
"Newcastle continues to be a strong, emerging regional office market ... with a growing population, local economic progress and a strong supply pipeline."
The net increase in occupied space, known in the industry as net absorption, was due mainly to an extra 13,429 square metres of rented A-grade offices.
Occupied B-grade space dropped 3893 square metres.
Some in the industry have questioned whether the Newcastle office market can absorb so much new stock in the near future, but Ms Hugo said demand for high-quality space was still evident.
"A-grade vacancy slightly increased, but it is still sitting in single-digit territory, while B-grade office space also recorded an increase.
"The lower grades are both showing a vacancy decrease.
"We expect the overall rate will sit around the 10 per cent mark for some time.
"Organisations are coming here looking for quality spaces but also large spaces.
"I'm not expecting the vacancy rates to continue to climb."
The vacancy rate was 14.5 per cent in 2010 before falling steadily to 7.1 per cent in 2019.
Ms Hugo said businesses did not appear to be abandoning offices two years into the COVID-19 pandemic.
"We are seeing a lot of people return to their offices in the CBD.
"I know some organisations are making flexible working arrangements more available to employees, but I think we're still seeing at least anecdotally and in the demand for that office space a lot of people moving back."
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