Sydney sublease market tide turns as office space availability halved

The Sydney sublease market has seen the tide turn, according to CBRE, who have recorded that the amount of available office space has halved over the past seven months recorded.

Source: CBRE

Where in September 2013 around 80,000 square metres of space was being marketed, now just 39,500 square metres of sublease space is available.

CBRE senior director, office services, Jenine Cranston, said that there were very few sublease options coming to the market in April. Of those that were brought to the market, none had exceeded 500 square metres of space.

“The quantum of available sublease space is now well below the historical average, after declining every month since September last year,” Cranston said.

Reasons behind the reduction in stock

Some of the reasons behind the significant reduction includes, in part, to deals being done, said Cranston. However, she also noted that a large proportion of the space has been converted into direct vacancy.

Currently, the Sublease Barometer notes that the finance and insurance sector is the largest contributor of sublease space in Sydney – and the space offered by this segment has halved since September in line with the overall results.

Similarly, in Melbourne this has also been seen. As Melbourne is the other main financially-led market, this comes as less of a surprise, but suggests more positive business sentiment for this sector nationally, she said.

The sublease opportunities

At present, three sublease options for 2,000 square metres plus are available – two of which are from finance and insurance sector tenants. In September, this was at nine leases.

Where:

• Western Corridor: 47% of available space
  
  
• City Core: 35% of available space
  
  
• Midtown precinct: 10% of available space
  
  
• Southern precinct: 8% of available space

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Source: CBRE

“Twelve months ago, a significant proportion of sublease space on the market came from tenants who had relatively short lease tails but believed they had enough time to get rid of space. They did not understand that incoming tenants wanted long term certainty in deal structures,” said Cranston.

“In recent months, however, we've seen a growing number of contracting tenants negotiate to surrender space as a result of long-term, direct lease deals being struck on their space. This is enabling owners to re-lease that space directly – using the break costs to cover some incentive and topping up the incentive pool to do new deals. This in turn firms up their weighted average lease expiry profile.”