The volume of Sydney CBD sublease space has hit a 10-year high, surging to levels not seen since the height of the Global Financial Crisis.
But COVID-19 hasn’t been the primary cause - at least not yet - according to CBRE Office Leasing Director Chris Fisher.
Instead, CBRE’s latest Sublease Barometer shows that much of the increase between Q4 2019 and Q1 2020 related to tenants committing to new developments or leasing refurbished office space.
“Our data shows that tenant relocation accounted for 51% of the total sublease stock available at the end of Q1, compared to contraction (31%) and consolidation (9%),” Mr Fisher said.
“In the strong market pre COVID-19, developers, landlords and tenants were willing to carry tenant lease tails to secure tenancy commitments. However, the availability of sublease stock is continuing to rise, and we expect this to continue throughout 2020 as the impact of COVID-19 filters through the market and a growing number of tenants look to offload surplus space.”
CBRE’s Q1 data shows that total Sydney CBD sublease space increased from 73,431sqm in Q4 2019 to 82,739sqm as at March 31, 2020. By comparison, the sublease vacancy was just 28,706sqm in Q1 2019.
Preliminary statistics to the end of April 2020 indicate a further increase in sublease space to 90,031sqm, well above the long-term average of 54,856sqm.
In comparison, sublease availability was approximately 90,000sqm at its GFC high in October 2009, with Property Council Australia (PCA) records showing that Sydney’s highest sublease vacancy was 119,588sqm in July 1992.
Mr Fisher noted that some 84% of the current vacant sublease space was fitted out and 65% of the supply consisted of Premium and A-grade stock, providing opportunities for occupiers to secure space with a high-quality fit out.
“We are already seeing tenants alter their requirements, honing-in on fitted stock which allows them to avoid capital costs and reduce rent via incentives in the form of rental rebates, which lowers their effective rent,” Mr Fisher said.
“However, many tenants are also adopting a ‘wait and see’ approach as they contemplate the effects of COVID-19, the impacts on their business and what their future office requirements will look like.”
Tenants in the finance and insurance services sector account for the highest proportion of sublease space at 42,731sqm, or 42% of sublease stock.
For Australian/international news or global stories, follow us on Twitter: @cbreaustralia
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.