COVID-19 brought profound and lasting impacts on Australia's office leasing markets. Sydney was no exception, where total CBD vacancy is 8.60 percent according to the latest Property Council of Australia statistics. This is no surprise - a pandemic that brings global economic uncertainty, business closures and widespread redundancies would impact the very sector in which business primarily takes place.
With this in mind, we are seeing a number of trends shaping the office market which will continue throughout 2021. Personally, I believe the following three will remain highly relevant:
1) Location, location, location: Sub-lease space now represents 1.67 percent of the CBD market, a 72 percent increase to what it was in June 2020. With sub-lease rents primarily 20 percent less than direct leases, along with existing fit-outs and larger incentives on offer to compete, the CBD is now more affordable for a wider tenant pool, including those that previously may have been priced out. Businesses looking to gain exposure to the CBD market will look to these sub-lease options, even more so among those tenants seeking shorter-term commitments due to future business uncertainty or otherwise. Similarly, rent reductions could encourage tenants in nearby industrial and/or suburban areas to move to Fringe locations such as Surry Hills and Woolloomooloo – leading to a more diverse tenancy mix across the CBD and Fringe for the medium term.
2) Fit-out is King: Many businesses are reluctant, particularly at the moment, to spend money on fitting out premises. Nor do they have the time to go through the design and construction process. A number of tenants are looking to walk into a fitted-out solution that is ready to go, or at least be able to adapt an existing fit-out to suit their needs. This means to compete with the higher than usual number of fitted-out sub-lease opportunities on the market, speculatively fit-out options are essential, particularly in direct lease opportunities up to 1,000sqm. This will go a long way in attracting a suitable tenant within the shortest possible time frame to your property.
3) Let’s get physical: Employees are now expecting more than ever from their physical office. The remote working arrangements enforced by COVID has shed light on both the benefits and drawbacks of working from home. At the same time, it's highlighted the crucial role a physical office continues to play for culture and collaboration. It's possible these factors combined will see tenants re-assess and/or reduce their overall footprint, and likely base a future relocation on lease expiry. An office must now well and truly tick all the boxes for location, fit-out, amenity and technology. Understandably (and luckily) landlords have championed the value of the physical office for a long time and in many CBD buildings, led the way in collaborative and innovative design. These higher expectations from tenants and the ability to truly choose if and when they lease space, will only serve to increase innovation in workplace design.
While nothing is certain, one thing is - it's going to be an interesting year for Sydney's office leasing market! I'd love to hear from you with on your thoughts on the market for 2021.
Get in touch:
Ben Kardachi, Director of CBD Office Leasing, CI Australia.
02 8238 0000