Secondary stock has seen less of the spotlight than prime over the past few years. Despite this, in Sydney and Melbourne secondary markets have performed well because of strong economic fundamentals, low vacancy rates and increased demand for office space in conjunction with strong white-collar employment growth.
However, in Perth, Brisbane, Adelaide, and Canberra, it is a different story, with secondary stock carrying high levels of vacancy, recording zero or negative net effective rental growth over recent years and in some cases becoming obsolete with respects to the occupational demands of tenants.
High levels of supply in CBD apartment markets over recent years means converting older office stock to residential isn’t as feasible as it once was. Additionally, office yield compression has delivered strong capital growth, providing less incentive to convert to alternative uses.