Co-Working remains strong in many markets across the country

The Savills Blog

Coworking remains strong in many markets across the country

With the release of the latest PCA Office Vacancy results, we take a closer look at each office market around Australia.

NSW

According to Tom Mott, State Director - NSW Office Leasing at Savills Australia, in the 2,000sq m plus market, the strongest and continual source of demand in the Sydney CBD is from coworking and flexible space operators, despite only making up 2.5% of the market. 

“This clearly indicates demand in general at the larger end of town isn’t as strong as it seems. On the supply side, Savills is tracking 260 prime whole floors as still being available now or in the near future within existing and development stock.

“With the Sydney CBD becoming unaffordable for some companies and off the back of the infrastructure boom, locations such as Alexandria and Green Square are becoming a very viable alternative.

“In the sub 500sq m market, speculatively building fit-outs are not working as they have been over the last two years; our clients are now requiring to be more flexible around the lease term and exit costs of a lease. In addition, smaller tenants are wanting more out of a building such as wellness options, premium concierge services and having a sense of community.”

VIC

Whilst the strength of Australia’s east coast office market is underlined by steady demand and net absorption across major markets, Melbourne remains “the engine room”  with tenant expansion from State Government, professional firms, co working providers, the education sector and increased centralisation pushing office vacancies rates to record lows of sub 3%.

Mark Rasmussen, State Director - Melbourne Office Leasing at Savills Australia, said office rents in Melbourne are surging with double digit growth as the market catches up with its peers after 20 years of lower cost Docklands supply.  “Whilst many tenants are surprised by the higher rentals, they are left with little choice in a tight market, particularly in the eastern and north eastern CBD precincts. Lease incentives are still a major part of the market and have remained stubbornly high despite the buoyant conditions. 

“The delivery of 11 new office buildings to the market from mid-2020 will move the rental growth back to trend as the market peaks in June 2020 and the resultant backfill space will see vacancies rise above 6% during 2020 and 2021. 

“We forecast the rental gains set prior to the mid 2020 peak will be maintained and a rise in incentives is likely as options for tenants increase,” he continued.

ACT

According to Pip Doogan, Director - ACT Office Leasing at Savills Australia, “Our opinion is that it is highly unlikely that a new, large-scale office development outside of the CBD or Barton will occur in the forthcoming few years without significant leasing pre-commitment.  

“However the pending availability of new A Grade accommodation in the Northbourne Avenue site due in late 2019/early 2020, and the potential for new accommodation offered by the two development sites in the CBD noted above will put pressure on landlords of existing, lesser quality buildings in their efforts to retain tenants, especially in and around the CBD.  

“There is also potential for the ‘Economic Rent’ required for new construction to lead to an increase in market rents for existing, first quality buildings.  In this regard we have witnessed a number of recent lease renewals by sitting tenants in high quality (or soon to be refurbished) developments in excess of $500 per square metre gross face.  

“Given the large gap between the anticipated rental rate for new buildings, and the apparent market rent for existing buildings, there is the potential for rents for existing high quality buildings to rise to a point closer to the ‘Economic Rent’ for a new building.”

Ms Doogan went on to say that the Canberra market has been subdued for the first half of the year but now with certainty in the political environment there are green shoots on the demand side.

“Activity is still predominantly in the sub-500sq m market although there are a large number of government briefs that are yet to be finalised. Refurbished and spec options are in hot demand and owners are working harder to create interest in their vacancies.

“For the back half of the year we see IT security and education as two sectors that are likely to drive leasing activity,” she said.

QLD

According to Daniel Boyes, Associate Director - QLD Office Leasing at Savills Australia, since the election, there has been continued confidence in the market, which has led to numerous smaller businesses requiring more flexible lease terms that align with their growth strategies. 

“Many of these companies have doubled in size within the first two years of occupancy. Savills have been directly involved in a number of these types of transactions, with two examples being Troocoo and Container Exchange who both doubled their footprint within 100 Creek Street. 

Mr Boyes went on to say the need for flexibility has given coworking and serviced offices a platform to compete with direct vacancy, in particular the spec suite market. 

“The demand for the sub 500sq m market remains strong with healthy competition between direct space and coworking. Savills view is that this healthy competition between the two offerings has given local Brisbane businesses a range of quality options that enables them to grow organically and plan for the future”.

SA

According to Adam Hartley, Director - SA Office Leasing at Savills Australia, the Adelaide CBD office market continues to improve with increased new international companies and local businesses from the typical fringe moving into Adelaide to take advantage of the best in class 10 Gigabit high speed internet, public transport and competitive rental rates. 

“This has seen a contraction of high B and A Grade office accommodation into the mid 2% vacancy rate, with the majority of the Adelaide CBD vacancy remaining in the C Grade buildings (24%).

“The typical fringe market has seen an increase (albeit small) in vacancy rates, as tenants have moved to more efficient buildings or moved into the CBD. The move to upgraded buildings has placed pressure on the availability of good quality office accommodation, and there is a genuine need for more new or fully refurbished office buildings,” he said.

WA

According to Graham Postma, National Head Office Leasing & Managing Director WA at Savills Australia, the ongoing trends of recentralisation and “flight to quality” continue to have a positive impact on overall vacancy as forecast.  Strong activity at the Premium end of the market is now translating into effective rental growth as landlords reduce the level of incentives on offer to reflect the strong demand and limited availability in this sector.

“The shortage of larger contiguous tenancies, particularly for tenants requiring 5,000sq m or more should translate into a similar trend of effective rental growth.

“Demand is now focusing on the better quality A Grade buildings, particularly those that have made significant investments into refurbishment works.

“Coworking groups have featured heavily in Perth over the past six months with WeWork entering the market with a significant commitment into Central Park and more recently, William Square, Northbridge.  IWG have expanded their presence, with spaces set to open a new offering in the redeveloped Raine Square.  This increased offering will result in continued competition in the smaller suite market,” he said.

Learn more about Savills Office Leasing.

PCA Office Vacancy Figures

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