Office subleasing levels ease as confidence returns

Office subleasing availability – a key indicator of business confidence – further tightened across Australia’s major CBD markets through the third quarter of 2021, according to CBRE’s latest Sublease Barometer.

National subleasing levels fell by 9.4 per cent quarter-on-quarter to 344,000 square metres, continuing a steady decline since they peaked in January at 428,600 square metres.

Sydney, Australia’s largest office market, led the way with a 21 per cent quarter-on-quarter decrease in availability despite the city being in COVID-19 lockdown, leading to single-digit office worker occupancy rates throughout the period.

CBRE’s Pacific head of office leasing, Mark Curtain, said major stock withdrawals, a slowing in new sublease availability and an uptick in sublease transactions were significant factors in the national subleasing recovery.

“Overall, we expect sublease availability to continue to decline in most markets over the coming months as occupier demand increases and as tenant contraction begins to ease,” Mr Curtain said.

Senior research analyst Nick Baring said national sublease additions had plateaued and industries such as financial services, which slashed office space, were moving into expansion mode.

“Vaccination rates are continuing to increase, enabling greater business continuity,” Mr Baring said.

“Combined with expansionary activity among small-to-mid-sized occupiers and public sector tenants, this will help support a further decline in sublease availability throughout 2022.”

Transactions drove the strong subleasing decline in Sydney, supported by the withdrawal of space by large financial and professional services companies.

“Good quality fitted out sublease space located in the core is still attracting the most interest, especially from growing technology companies,” said Tim Courtnall, senior director office leasing NSW.

The research reveals that Melbourne, where COVID-19 lockdowns hit hardest, has more sublease space than any other Australian city, accounting for 54 per cent national availability, causing asking rents to plummet.

“Companies offering older sublease opportunities are now pivoting purely towards cost recovery and offering exceptionally attractive terms to derive income before the lease expiry,” said Ashley Buller, head of office leasing in Victoria for CBRE.

In Brisbane, subleasing rates fell to the lowest level since August last year. More than 85 per cent of available sublease space in the city is less than 2000 square metres.

Chris Butters, CBRE state director leasing, said opportunistic tenants were absorbing better quality opportunities while some companies had started withdrawing floors from the sublease market.

No fresh sublease space entered the Adelaide market through the third quarter and uptake of existing fitted out space with leasing flexibility was strong. Further west, agents report that overall sublease space availability is minimal.

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