Splitting floors helps attract CBD office tenants for unused fitted space

Landlords struggling to fill large floors in the CBD should consider splitting floors to attract a growing number of tenants looking for smaller, fitted office space.

A substantial facelift and sub-division of space has led to a more than 10 leases being signed in the last 12 months at 470 Collins Street in the Melbourne CBD – a  sign of strong demand for quality office space up to 200 square metres on Collins Street.

In the past 12 months, I have leased almost 800 square metres of space, ranging from 40 square metres to 200 square metres, within 470 Collins Street, which is commanding rents in the $400-$450 per square metres (gross) range.

In total, I have negotiated more than 20 leasing deals in the first half of 2012 to tenants on split floors and I continue to receive substantial enquiry on spaces of 100-300 square metres with a usable fit-out, with many converting to deals.

Quality fitted tenancies in the CBD are in high demand, however there is very little supply.

Tenancies in quality B-grade buildings with a good fit-out, or which have been refurbished, are also in strong demand.

Some smaller tenants are seeking a flight-to-quality, however there is a limited number of options.

Sub-lease space is quite attractive to tenants for short-term purposes, while benefiting large tenants by reducing their costs by subletting unused fitted space.

Incentives are still important in attracting tenants in the current market, however having a quality fit-out in place could assist landlords in reducing the incentives required.

Landlords with whole floors up to 700 square metres should consider splitting floors where possible into tenancies of 150 to 350 square metres to cater to the increased demand for this kind of space.

Adam Davy is Colliers International executive for office leasing.