Sydney’s commercial office market has slowed down over the past couple of years, after years of unprecedented growth. Let’s take a closer look at the trends that are working in tenants’ favour.

Vacancy

Sydney's CBD vacancy rate has increased over the last quarter, now reported at 11.5%.

However, vacancy figures could be much higher, especially considering the number of subleases available.

With limited supply in the pipeline and approx. 42,000 sqm of space to be withdrawn for the Hunter Street Metro Station, many agencies remain upbeat about the market's recovery.

But we believe Sydney will stay a tenant's market for the foreseeable future due to:

• Daily office occupancy - Occupancy still sits well below pre-covid levels, and many of our clients are giving back excess space on expiry.
• The technology and banking industries are downsizing - At the beginning of 2022, tech and finance made up 60% of all leasing deals in the Sydney CBD. But these sectors are unlikely to drive demand for direct space over the next few years. For example, CBA plans to exit their 19,000 sqm space at Darling Park, and Westpac is looking to reduce its office footprint by one-fifth.
• Falling office values - Analysts are predicting a 20% fall in office values. Dexus Tower at 44 Market Street is a good example of this, with the property selling in June for 17% less than its December book value. A tangible fall in valuations and transaction prices could cause landlords to reconsider face rents.
• Upcoming expiries and shorter leases - Tenants are downsizing on expiry and signing new leases on shorter terms. In 2019, the average office lease term was 3.5 years, but this has now dropped to 2.5 years.
• Flight to quality - There's a growing push for quality fitted spaces that are now more affordable, crushing the demand for lower-grade buildings.

Rents and incentives

In a bid to maintain property values, gross face rents have continued to increase quarter-on-quarter, with Premium rising from $1,645 to $1,680, A-Grade from $1,360 to $1,385 and B-Grade from $1,085 to $1,100. However, a rise in incentives has offset these increases, now averaging between 30-39%.

Subleasing

The Sydney CBD has seen an uptick in the amount of sublease space available, now sitting at 126,796 sqm (2.4% of stock). This comes as key industries, particularly the tech sector, rethink their property requirements. The ongoing struggle to attract staff back to the office is also a factor.

The best deals we're doing are in the sublease market, where businesses are offering their space at a heavily discounted rate to exit their lease.

Tenant Representation Sydney

Tenant CS is a commercial tenant advisory service that offers tenant representation services in Sydney. We can also cater to businesses across Australia, with a particular focus in Melbourne, Perth, Adelaide, Brisbane and Canberra.

We represent you, the tenant, and our in-depth knowledge of the commercial office market gives our clients a competitive advantage when it comes to finding a space or negotiating a commercial lease.

If you’re on the hunt for tenant representation services in Sydney, get in touch with our team today!

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