Global and local economic uncertainties and office vacancy in Australia : a sub-class analysis

Motivated by uncertainties caused by the COVID-19 pandemic, this study examines how office vacancy ratios (for premium, A, B, C and D-grade spaces) in Australia respond to shocks in global and local economic uncertainties. Using semiannual data from 1998 to 2020 and applying the vector autoregression (VAR) model, our results suggest that office vacancy ratios respond positively to economic uncertainty shocks in general, and especially to local economic uncertainty. Moreover, our sub-class analyses show that vacancy ratios in various office spaces respond differently to uncertainty shocks. The office vacancy ratio in premium-grade office responds to both shocks after one year with its responses fading out in year three. B-grade and C-grade vacancy ratios respond to both shocks within the first year and responses last for about 4 years. Additionally, sub-lease vacancy ratios in the aggregate office space show quick responses to uncertainty shocks (dying out in 2 years), while direct vacancy ratios respond after about 1 year (but fading out in 3 years).