A 19 per cent increase in office leasing inquiries at the back end of 2017 indicates that activity this year will continue at a strong rate, according to Colliers International's latest Office Demand Index report.
While Sydney inquiries rose 6 per cent and Perth surged 257 per cent and Perth 173 per cent, Melbourne inquiries fell 9 per cent and in Adelaide inquiries dropped 20 per cent.
Inquiries are not the same as transactions and do not necessarily lead to new leasing deals however, they are a forward-looking indicator of leasing activity to come.
These indicators suggest that even as Melbourne's office activity slows, Sydney will remain strong and the formerly depressed markets of the mining-state capitals will provide a welcome boost to activity.
Inquiries increased across all segments of the market, according to Colliers' Managing Director of office leasing, Simon Hunt.
"At the smaller end of the market, we recorded a 14 per cent increase in demand for office space up to 999sq m," Mr Hunt said. "In the mid market (1000-2999sq m), we saw an 18 per cent increase in enquiry and for larger enquiries, above 3000sq m, we recorded 22 per cent growth in demand at the conclusion of 2017."
In Sydney's red-hot office market, where the vacancy rate fell to 5.4 per cent in the December quarter, down from 7.7 per cent a year ago, vacancies tumbled to a near 10-year low and prime rents shot up more than 20 per cent over the year, figures from agency JLL last week showed. A slew of deals last year pushed valuations higher than many people expected.
The total number of leasing deals by area last calendar year rose 11 per cent to 785,253sq m of office space from 2016 and 1 per cent by number of transactions to 942, Mr Hunt added.
Colliers' national director of tenant advisory, Tim Farley, said a significant amount of recent sub-1000sq m tenants were attracted by an increase in freshly fitted out suites being offered by landlords.
"Whilst newer buildings are trending towards larger and more efficient floorplates, B-Grade and ageing Prime Grade assets are being repositioned with an array of smaller tenant offerings with the benefit of shared facilities to provide greater flexibility," Mr Farley said.
"On a national level, we are seeing larger businesses expanding their footprint as a result of continued growth or consolidation of premises, whilst workplace methodology and clever design is able to reduce the amount of space required through achieving greater efficiency."
** With AFR*