Sydney standout as national sublease space lifts 5%
Sydney standout as national sublease space lifts 5%
16 February 2016
Sydney, 15 February 2016 – Business contraction in Perth and Melbourne have offset improving conditions in Sydney’s office markets, driving a 5% rise in the volume of sublease space in Australia’s capital cities.
CBRE’s latest Sublease Barometer report highlighted a 16,000sqm increase in the availability of sublease space available across the country in Q4, led by a 22% rise in Perth, 15% lift in Adelaide and 13% spike in Melbourne.
Sydney emerged the standout performer, with underlying demand fundamentals continuing to gain momentum and several parcels of sublease vacancy absorbed, including space at 1 Farrer Place and 85 Castlereagh Street.
CBRE Regional Director, Office Services, Andrew Tracey said continued softening conditions in the resources sector were offsetting the positive drivers currently present in the Sydney and Melbourne markets.
“While the market continues to improve and tighten in both Sydney and Melbourne, with better demand evident in both cities, ongoing softening in the resources sector will continue to impact sublease availability nationally,” Mr Tracey said.
“The silver lining is Sydney’s strengthening market, which will continue to gain momentum as the impact of the major infrastructure projects across the city gathers steam and the continued withdrawal of prime sites for residential use will drive vacancy downwards.”
In Sydney, sublease availability dipped 19% in Q4, with just 49,330sqm of space available over the period.
By comparison, Perth currently offers the highest level of sublease space, with a 22% rise pushing the total space available to a peak of 98,300sqm – setting a new high in the Perth market.
Mr Tracey attributed a large proportion of the sublease space available in Melbourne and Sydney to backfill lease tails.
“As new projects come online, there will be a lot of movement in the market, with a number of tenants relocating to premises, and subsequently flushing space back through to overall vacancy,” Mr Tracey explained.
“We have seen strong demand from incoming tenants for quality, fitted-out sublease options in the larger markets in better assets. Older style fit-outs remain more challenging. ”
Nationally, CBRE’s Barometer highlights that contraction in the resources sector remains the primary motivation for the sublease stock currently available, accounting for almost one third of all space.
With commodity prices remaining under pressure at the start of 2016 and only a gradual improvement expected in broader occupier demand, sublease is likely to remain inflated for some time.
“Continued softening in the resources sector remains evident in the Perth and Brisbane markets, with contracting mining operations and subdued business confidence placing upward pressure on sublease space,” Mr Tracey said.
Melbourne is forecast to experience a higher sublease vacancy rate in the short term as tenants move to space at new projects in 2016. In contrast, stock withdrawals are likely to support further sublease contraction in Sydney, despite the new supply pipeline.
Major market trends
Sydney– After increasing to 61,100sqm in Q3, sublease availability contracted by 11,800sqm to 49,300sqm in Q4. The legal, finance and insurance sectors attributed most of this decline, with 8,800sqm absorbed by these sectors over the quarter. The mining, manufacturing and construction sector boasts the largest amount of sublease availability at 18,700sqm. This is largely due to Lend Lease’s 17,500sqm option at 30 The Bond being released in Q3 as a result of its move to Barangaroo.
Melbourne– Sublease availability in the Melbourne CBD lifted 13% over the quarter, reaching 77,200sqm. The finance and insurance sector was the largest source of sublease availability, recording a 51% rise in the quarter to 25,700sqm. Contraction now accounts for 52,500sqm of sublease space in the Melbourne market, totaling 77% of availability.
Brisbane – A major lease to the Queensland State Government in December underpinned a slight 2% drop in sublease availability during Q4. Mining companies accounted for the majority of new space added during the quarter, with Rowland (1,493sqm), Aurizon (2,318sqm) and QANTAS (1,834sqm) bring new space online. Sublease availability is expected to increase in 2016, on the back of new projects including 480 Queen Street.
Perth– Perth experienced a significant spike in sublease availability in Q4, with an additional 18,000sqm bringing the total space available to 98,300sqm. The increase brings total availability to the highest level seen in Perth. The mining sector remains the dominant source of sublease availability, increasing by 10,800sqm over the quarter to 50,200sqm.
Adelaide – Sublease space availability increased 15% over the quarter to 22,200sqm, with all stock located in the core precinct of the CBD. The professional and business services sector continued to provide the most sublease space, totaling 9,600sqm. Contraction accounted for 63% of the sublease motivation, with the remainder of availability driven by relocation.
Canberra– Sublease availability dipped slightly to 16,900sqm in the quarter. The Federal Government remains the largest driver of sublease space, accounting for eight options in the CBD. Government restructuring is the main driver for sublease, with contraction the second highest motivation.
For Australian/international news or global stories, follow us on Twitter.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.