Landlords create speculative fit-outs as rivalry for tenants intensifies: Savills

“With office vacancy rates in Perth still above 20 percent and conditions continuing to favor tenants, proactive landlords have been completing speculative fit-outs or redecorating existing fit-outs in order to present a more attractive offering to tenants. This trend is likely to continue.” – James Phelan, Associate, Office Leasing 

Pro-active landlords are now completing speculative fit-outs or redecorating existing fit-outs as the competition for tenants intensifies with Perth’s office vacancy rate still hovering above twenty percent.

According to Savills Associate, Office Leasing, James Phelan, landlords are under increasing pressure to present their office assets in ready-to-use form, a trend which could see owners using display suites in much the same way that developers use them to present their apartments to the market.

“Tenants have shown a preference for brand new, fitted, ‘plug n play’ type office space and recent activity suggests savvy landlords are achieving increasing inspection numbers resulting in reduced letting up periods, earlier income returns, and higher face rents when this sort of product is offered to the market. 

“Over the next few years there is the distinct possibility that we are going to see owners creating display suites in order to demonstrate the quality of their asset and the point of difference with their competitors,” he said. 

Ready to use fit-outs a win-win 

Mr Phelan said ready to use fit-outs were a win-win for landlords as they also offered tenants a smoother and less complicated transition into new office accommodation.

“The primary driver for this strategy relates to achieving cost efficiencies. That is, if an existing fit-out can work for a new tenant then they can take the majority of any incentive offered in the form of rent abatement, rather than as a cash contribution to build a new fit-out.

“By not having to allocate their incentive to fit-out costs, tenants can reduce their effective rental costs which makes it easier and more compelling for them to consider a relocation,’’ Mr Phelan said.

He said generic fit-outs with open-plan working environments that could accommodate a variety of industry groups and with the flexibility for tenants to make modifications, were strategically the preference for a speculative fit-out.

“This strategy is particularly prevalent for smaller tenancies from 200-350 square metres, however larger deals have transacted also, as evidenced by Resolute Mining taking 1200 square metres of speculative fit-out at Australia Place, 12-14 William Street, in April.” Mr Phelan said.

He said, anecdotally, the most common enquiry size for tenants looking for CBD space was 150 to 350 square metres.

“Owners that can have ready-to-go, ‘plug n play’ redecorated or fitted out tenancies will be well placed to tap into this enquiry, entice tenants to relocate and subsequently secure new leasing transactions,” Mr Phelan said.

Perth fit-outs completed in 2017 on the back of a speculative fit-out or redecoration of an existing fit-out include: 

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James Phelan is an Associate in the Savills Perth Office Leasing team. Savills is a leading global real estate service provider offering the full spectrum of services from strategic advice to managing assets and projects and transacting deals. To learn more about Savills, visit savills.com.au.