Why Subdivision Works
In a market that is experiencing huge growth, it is important for landlords and agents to be receptive to economic and demographic drivers enabling them to fully take advantage of current conditions.
The Sydney CBD now tops the Global Office Index with a massive 30.1% growth in 2017. This can be credited to large amounts of properties being withdrawn, with an estimated 500,000 square metres of office space being permanently taken offline between 2016 and 2020. Naturally there has been a huge shift with pressure on rental value and a demand from Landlord’s for longer leases. The majority of the tenants displaced can be classed as small tenants with requirements generally remaining below 300 square metres, meaning there is a large shortage of stock in the smaller suites.
Recently CI Australia, on behalf of our off-shore client Fasako, took full advantage of these market conditions when tenants British American Tobacco (BATA), vacated two floors at the A-Grade building China Town Centre (405 Sussex Street). We recommended sub-dividing at least one floor for smaller tenancies to take full advantage of tenant displacement and a tightening market. Additionally we advised our client that displaced CBD tenants were causing a ‘ripple effect’, where they could no longer afford core CBD rents, and therefore were searching for quality assets in fringe areas – something that is few and far between.
Subdivision plans were confirmed in April 2017 with a view of completing works by June 2017. With suites ranging from 60 sqm up to 350 sqm, we began marketing in April and leased five out eight suites before the sub-division had begun, with the remaining three suites leasing within two months of the completed works. The average price per square metre on level 6 was $635 per square metre gross with a minimum term of three years. This represents growth of approximately 17% over three years.
For more information on how the CI leasing team can maximise your properties leasing potential, contact our experience commercial leasing team today (02 8238 0000).