Sydney CBD sublease space hits 74,000 square metres as finance firms downsize: CBRE

The amount of sublease space available in Sydney's CBD reached 73,872 square metres in April, the highest in two-and-a-half years, as financial services firms downsized their operations.

'Consolidation' or 'contraction' were the primary reasons for subleasing space with finance and insurance firms accounting for nearly 40,000 square metres of available sublease space followed by property and business services (around 10,000 square metres) and government tenants (10,000 square metres)

More than half the sublease space available (52%), is situated in the city core.

The increase in sub-lease space is highlighted in CBRE’s latest Sublease Barometer, which tracks both the volume of sublease space and the trends occurring within different industry groups and market sectors in the Sydney CBD.

This upward trend is expected to negatively impact the city’s overall office vacancy rate in 2013, currently at 6.5% according to Morgan Stanley.

Examples of available sublease space include more than third of the space at Investa's  20 storey 347 Kent Street building, the headquarters of ING Australia. It features 27,000s square metre of space, of which more than 9,000 square metres is available to sublease across eight levels. Sublease spaces range from 500 square metres to 1,4000 square metres with rents of between $500 to $600 per square metre excluding GST.

Other tenants subleasing space include Perpetual, State Street and ANZ Bank, which is relocating to its new headquarters at the $800 million 161 Castlereagh Street tower being completed by Grocon.

The decision by firms to downsize has meant that much larger sublease tenancies are being made available, with the barometer showing that tenancies greater than 1,000 square metres account for 70% of all options.

The report shows that there are currently six options available at present of greater than 2,000 square metres which combined account for 38,000 square metres of sublease space.

The last time the sublease volume was higher was in November 2009, when the quantum of sublease stock was close to 90,000 square metres.

The CBRE barometer shows that the level of sublease stock dropped considerably throughout 2010 and 2011 but has been tracking higher since late last year and over April the volume of sub lease stock increased by a further 1.52%.

In December 2011, available sublease space was under 40,000 square metres.

CBRE office services director Jenine Cranston attributes the increase in sublease space in recent months to financial service tenants shedding more space in further rounds of downsizing.  

“The consolidation of financial tenants continues to have a strong influence on the sublease market and is contributing to the increase in the number of larger sublease tenancies,” she says. 

“The finance and insurance sector presently accounts for around half of both the number of sublease opportunities and the quantum of floor space available, with property and business services also accounting for a high proportion of stock compared to other industry sectors.” 

Cranston says one alleviating factor for owners was that the majority of sublease options did not have quality, useable fitouts in place – something that a growing number of cost conscious tenants were requiring. 

“This said, the increase in sublease stock has undoubtedly put an upward pressure on incentives across the city. During the year we expect to see a number of sublease opportunities converted into direct space if it remains in the market. However, if this upward momentum in sublease space continues, this may negatively impact overall vacancy in 2013," she says.