Sydney, 29 October 2013 – The availability of office sublease space nationally is likely to have peaked, with no significant increases in stock expected in the short term according to new forecasts from CBRE.
The latest city by city Sublease Barometers from CBRE show that the amount of sublease space is hovering between 70,000sqm and 80,000sqm in Sydney, Melbourne, Brisbane and Perth.
While this is above historic averages, CBRE Regional Director, Office Services, Andrew Tracey said the expectation was that no significant tranches of new sublease space were expected to come to the market in the near future.
“Much of the available stock is subject to very short lease tails with expiries in 2014 and 2015,” Mr Tracey said.
“This is more of a deferred direct hidden vacancy issue given the inherent difficulty in leasing space with less than a three year lease expiry. Much of this stock is expected to revert back to direct vacancy, which will significantly reduce the volume of available sublease space.”
The Sublease Barometers track both the volume of sublease space and the trends occurring within different industry groups and market sectors in the major capital city markets.
They highlight a considerable divergence between the performance of Australia’s smaller and larger capital cities. In Canberra, just 8,553sqm of sublease space was available in September, despite continued uncertainty in relation to public sector rationalisation – although this is expected to change any day as various government departments are restructured.
No Barometer was prepared for Adelaide given that only a negligible amount of space is current available.
The market influencers also vary by city. As would be expected, the mining sector has had a much more significant influence on the Perth and Brisbane markets given the recent slowdown in this sector to which both cities have a high exposure.
Brisbane’s high exposure to government tenants has also resulted in that city being impacted Queensland State Government job cuts and consolidation, with almost 2,500 full-time equivalent jobs in inner Brisbane cut from the Queensland public service in 2013.
Sydney – the city with the highest capital city exposure to the finance sector – has felt the brunt of low financial market sentiment. However, Mr Tracey said employment in the Sydney finance and insurance sector had increased by 4.5% in the September quarter, outperforming the national figure of 0.4% and continuing the positive momentum from Q2.
“With this sector being the main contributor of sublease space, overall availabilities may start to decline as business sentiment improves,” Mr Tracey said.
He added that the national office leasing market was expected to show signs of improvement in the second half of 2014 and early 2015 as business confidence improved.
“At this point we’re seeing a post-election effect with the most active decision making at the smaller end of the market, for tenants in the sub 500sqm category,” Mr Tracey said.
CAPITAL CITY SUMMARY
Sydney - The volume of sublease space rose by 2,033sqm to 80,196sqm during September. However, only four new options came to the market during the month, substantially fewer than the 11 options added in August. The finance and insurance sector increased its dominance in the sublease arena during September, to account for some 55% of the available space. Public sector contraction is also playing a role in the market.
Melbourne - Moves by ANZ and NAB have reduced the stock of sublease space in the Melbourne CBD, by 5,985sqm during the month to 74,860sqm. This is significantly reduced from the year high of greater than 100,000sqm. A flight to quality has also emerged as one of the other key influencers, as businesses capitalise on opportunities to take advantage of high incentive levels to move to better quality space.
Brisbane- Over 79,000sqm of sublease space was available in September – up 4,084sqm on the previous month. The greatest amount of sublease space – 34,408sqm in total – involved the resources sector with companies such as Rio Tinto and Arrow Energy reducing their space and office closures by companies such as Newcrest Mining and Xstrata Coal, save for very small presence being maintained. A further 21,407sqm of space was sourced from the public sector across several larger holdings.
Perth - While the stock of office sublease space in Perth has climbed to over 80,000sqm, up 7,507sqm in the previous month, this is expected to be the peak of the market. A slowdown in the mining sector and a rationalisation of staff in the engineering and resources support services sector has been the predominant driver behind the increase in the sublease market, with the volume of space having increased by 72% since the start of this year. However, current leasing enquiry is more focused on expansion and/or larger space needs such as the Shell requirement for an additional 2,000-3,000sqm, Woodside for an additional 700-900sqm and Link Market Services for up to 2,000sqm.
Canberra - The availability of office sublease space in Canberra remains relatively low at this stage with just 8,553sqm of sublease space was available last month. However a major shift is expected as the Commonwealth goes through the restructuring of various Government departments. One lease which is the subject of considerable conjecture involves the 12,250sqm of space occupied by the abolished Department of Climate Change at the landmark Nishi building. With Climate Change having been absorbed into the Department of the Environment, there has been ongoing speculation about how the government will deal with its 15-year Nishi lease obligation.
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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 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 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 atwww.cbre.com.au.