This article is from the Australian Property Journal archive
OFFICE sublease availability across Australia’s major cities fell during the first half of 2021 to its lowest level seen since November last year, suggesting office occupiers were showing increasing confidence in the market before the latest COVID outbreaks.
Across the Sydney, Melbourne, Brisbane, Perth and Adelaide CBDs, the end-of-June quarter figure of nearly 374,604 sqm is 10.7% lower than the 419,580 sqm documented at the end of March, according to CBRE’s Sublease Barometer.
The national figure peaked at 428,600 sqm in January, amid rises of 31.1% in the December quarter and then a further 25.5% in the March quarter.
Falling sublease availability has primarily been driven by leasing take-up and space being withdrawn from the market by occupiers, while the June quarter also 16,776 sqm of space taken up in financial and insurance services subleases.
“Undoubtedly, the rapid rise in sublease space last year was very concerning for the national market, however, we have clearly passed the peak of the cycle and the market should gradually trend down over the next few years,” CBRE head of office leasing – Pacific, Mark Curtain said.
He said that while the Melbourne sublease market has been more stubborn than others given the extent of its lockdown periods, transactions currently in documentation will lead to a lower year-end number.
Sublease activity in Adelaide, Brisbane and Perth is not a major feature of the market.
Ahead of the city’s current extended lockdown, the sublease market had tightened the most in Sydney, where the available supply fell to 112,913 sqm, down 45,717 sqm – or 28.8% – against the first-quarter figure.
That was the city’s lowest documented figure since 104,171 sqm in June 2020, while it was 167,908 sqm at the turn of the year.
“Sydney’s decrease in available sublease space was driven by strengthening occupier demand and withdrawal of stock,” Chris Fisher, CBRE director – office leasing said.
“With 94% of the sublease stock being fitted and 83% of the stock in premium and A-grade buildings, tenants are seeking a flight to quality, taking advantage of the favourable deal terms on offer, to provide a workplace environment that will encourage staff back into the office.
“The withdrawal of stock was also a major contributor to the reduction in sublease stock, with 32,077 sqm taken off the market due to the positive outlook for business, and businesses re-evaluating their office requirements going forward.
“Sydney’s current lockdown is curtailing most inspection activity, although negotiations already at an advanced stage are continuing. That is in contrast to 2020’s lockdown, when nearly all negotiations were shelved. We are predicting a positive Q4 2021, provided the current lockdown doesn’t drag on into October and beyond.”
Melbourne was the only city to record a rise in availability in the June quarter. The 10,969 sqm jump to 182,668 sqm, which represents 49% of the available national supply. While ticking down towards the end of the quarter, it is still more than double the 89,167 sqm documented in June 2020, before the city’s second extended lockdown.
That sublease space is across 151 tenancies, a total down 32% from the 220 the March quarter following significant activity in the sub-500 sqm and sub-1,000 sqm markets. Most available tenancies are now 2,000 sqm-plus.
Ashley Buller, CBRE head of office leasing – Victoria said there are a number of large pending transactions, along with some sublease withdrawals, including one large 6,000 sqm withdrawal in Docklands.
The Docklands precinct still houses the majority of Melbourne’s sublease space, followed by the western core, he said.
“More than 80% of Melbourne’s sublease tenancies sit above 2,000 sqm, and larger tenants are starting to re-enter the market and firming up their space needs. In this regard we expect an improved sublease take-up for the send half of 2021,” Buller said.
“Additionally we don’t anticipate many further large sublease opportunities coming to market, and we expect further sublease withdrawals for an overall reduction in Melbourne’s sublease space.”
Financial and insurance services firms continue to have the most available space for sublease nationally, with 131,420 sqm of the total after take-up of 16,776 sqm in the quarter. That is followed by professional, scientific and technical services companies and those in the information, media and technology space.
