The increase in Sydney CBD office vacancy rates – from 3.9% to 5.6% from January 2020 to July 2020 (PCA) 3.6% - 3.8% in Premium-grade buildings and from 2.6% to 4.7% for A-grade buildings - is indicative of the economic downturn, lower white-collar employment and uncertainty in the market as a result of COVID-19. Employees are working from home while businesses are cost-cutting and analysing their office space utilisation - and there are more questions than answers as to what the office of the future will look like.
With such uncertainty, several larger office requirements have been put on hold since March. Enquiries fell dramatically in April, however this trend has now started to reverse, with enquiries increasing, especially over the past two months.
Incentives are on the rise to encourage leasing activity in the market, nudging up around the 30% mark. Face rents are holding, however with the increase in incentives, effective rents are likely to record a 20% fall through 2020 and 2021.
Sublease stock is increasing, with CBRE’s latest CBRE Sublease Barometer
showing 105,701sqm of space available for sublease at June 30, compared to 82,739sqm at March 31. This is well above the long-term average of 54,864sqm and eclipses the GFC high of around 90,000sqm. But there is also some positivity in the market, with tenant demand removing 18,540sqm of sublease space during the June quarter, helping to offset the 41,502sqm of sublease space that was added during the same period.
We are also seeing some tenants resurface in the market, albeit with reduced size requirements as they reassess their space needs. With 92% of the sublease space having an existing fitout - and incentives on the rise - there are some good opportunities for tenants to make a move.