Economic puzzle: Employment growth contrasts weak economic activity

Referred to as the ‘economic puzzle’ by RBA, employment growth in Australia remains stronger than the slowing economic activity. Despite the 2.3% growth in economy last 2018, 60% being white collar industries, economic output and labour productivity of white collar sector has outperformed. Over the past two years, other sectors produced 6.5% less output per employee while white collar labour productivity has only recently declined by a negligible 0.45% in 2018.

The positive underlying demand coupled with constrained supply will result to tighter major capital city leasing markets. Sydney and Melbourne CBD still remains strong as vacancy tightens to new cyclical lows at the end of 2018. In the coming years, Australia’s CBD office supply will increase strongly as Melbourne bears the majority of this development but vacancy in Sydney CBD office market will remain tight.

Regardless of the prime office cap rates tightening towards the end of 2018, the Capital transaction activity remained strong across Australia CBD. There have been dominant buyers in recent CBD office capital transactions but foreign-sourced capital and global financial market dynamics remain critical to the outlook for Australian office capital market.

The 2019 outlook for the Australian  economy has softened. The main source of weakness in GDP growth is being related to the household sector. In contrast, government expenditure and non-mining investment have contributed a lot in the demand of office space in Australia’s major capital cities.

Image and article source: Investa's Office Market Outlook March 2019  


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