Demand for office leasing enquiries between 1,000sq m and 5,000sq m have characterised the Sydney market throughout 2018, steadily pushing the vacancy rate to a new record low.
Fast paced market with low supply
The Sydney-based Office Leasing team has concluded several commitments for more than 1,000sq m, with deals to Urbis (3,600sq m), Quantium (2,600sq m) and Australian Registry Investments (2,281sq m) representing some of the hallmarks of the past 12 months.
This year has proven to be fast-paced, as the market continues to perform strongly with particular depth in enquiries for space between 1,000sq m to 5,000sq m plus – and ironically, this is where there is the greatest lack of supply.
With the vacancy rate arguably now sitting closer to 3.5 percent than the PCA’s 4.6 percent rate announced in July, it is now a matter of ‘how low can it go’ before the next supply cycle in 2020/2021 eases the pressure.
Parkview Construction’s commitment to lease 1,141sq m at 60 Union Street for $780 net per sqm; and Property NSW’s 1,012sq m lease at 11 York Street for $850 gross per sqm are among Savills other top lease deals concluded this year.
Several major players are in the market for new office space, with larger requirements totalling about 120,200sq m, including Deloitte for 35,000sq m, the NSW government for 18,000-20,000sq m, SalesForce for 23,000sq m, Caltex for 8,500sq m, John Holland for 6,000sq m, and The Iconic for 4,000-8,000sq m.
Pre-commitment and co-working on the rise
Newly completed, refurbished and pre-commitment projects, such as Barrack Place, Australia Square Tower, 60 Martin Place and 388 George Street, have already received significant levels of commitment.
In some cases, backfill space has also been quickly snapped up, such as Amazon at 2 Market Street.
Conversely, enquiries in the small- to medium-sized enterprise market of 100-500sqm have generally been a bit more unpredictable, with high quality, ‘hassle-free’, spec-fitted suites continuing to attract and complete transactions.
Unfitted and open-plan suites are experiencing more subdued levels of interest and a reduced number of tenant inspections.
Co-working groups continued to forge ahead, with big space commitments and ongoing requirements spanning the CBD and North Sydney markets.
WeWork, WOTSO WorkSpace, Hub and new entrant JustCo, as well as traditional office landlords, are grabbing a slice of the lucrative co-working industry.
Flex by ISPT, SuitesX by Dexus and Space & Co by GPT are all tapping into the flexible or turn-key office space platforms catering to small, medium and large occupiers.
Uncharted waters ahead for 2019
Looking forward, 2019 may take the office leasing market into unchartered waters, with an ongoing reduction in supply and continuing strong demand pushing rentals upwards and impacting incentive levels.
This may result in some companies possibly widening their search criteria to other CBD locations, such as North Sydney, and/or renew their leases, put decisions on hold, or contemplate alternative flexible workplaces until such time as the dam breaks.