Melbourne dominates as national sublease space shrinks

Office sublease availability has dropped by 7.3% across the nation to a more than two-year low of 246,027sqm amid increasing demand for high-quality, pre-fitted office space.

CBRE’s latest Sublease Barometer highlights that Melbourne recorded the largest q-o-q fall in sublease availability in Q3 of 21.3%, representing circa 29,500sqm of space, followed by Perth with a 19.9% fall, representing circa 1,400sqm of space.

A total of 75,600sqm of sublease space was leased or withdrawn nationally, offsetting 56,300sqm of new additions to the market.

CBRE’s Pacific Head of Office Leasing Mark Curtain noted, “The strong appetite for high-quality fitted office accommodation has been a key theme across the national office market over the past two years.”

“This trend has aided the recovery of the sublease market, with availability having fallen to the lowest level in over two years after hitting a pandemic peak of 428,600sqm in January 2021. We are anticipating strong transactional activity to drive further stock reductions in Q4.”

Brisbane recorded the largest increase in sublease availability of 7,400sqm q-o-q, representing the first quarterly increase after remaining in the downward trajectory for five consecutive quarters.

Adelaide also recorded a net increase of 4,200sqm over the quarter, while Sydney held relatively stable with a net increase of less than 100sqm recorded over the same period.

CBRE’s Head of Forecasting and Data Analytics Joyce Tiong noted, “While sublease availability is expected to remain fluid as corporates continue to assess their corporate real estate strategies, the ongoing flight-to-quality by tenants and increasing demand for A-grade, pre-fitted space is anticipated to offset potential new additions in the near term.”

As of Q3 2022, more than 90% of Australia’s total sublease availability was in prime-grade buildings, with less than 10% of this being non-fitted-out space.

FURTHER COMMENTARY

MELBOURNE

Ashley Buller, CBRE Head of Office Leasing – Victoria

“We continue to see sublease space trend downwards in Melbourne. While new space entered the market in April/May this year, total deal volume was greater than new supply, resulting in an overall reduction in total space.”

“A new trend we are see is that larger sublessors are speculatively reconfiguring their existing fit-outs, to compete with new fitted space at a discounted price point. Equally, we are now seeing larger tenants showing reluctance to commit to sublease space if they are unable to provide further term/longer term tenure. Overall, we anticipate sublease space will continue to reduce in Q4.”

SYDNEY

Tim Courtnall, CBRE State Director, Office Leasing – New South Wales

“Sydney recorded only a slight increase in sublease space across the quarter, which is a positive sign given the current economic headwinds. While some additional sublease space has hit the market, this is mostly from larger occupiers who are contracting and working to achieve greater clarity on their occupancy requirements, Our expectation is that sublease availability will decline over the next two quarters with several larger sublease transactions being finalised.”

“Challenging economic conditions could provide a further catalyst for a reduction in sublease stock, providing an attractive option for tenants facing higher fit-out costs and longer lead times when leasing new space.”

BRISBANE

Chris Butters, CBRE State Director, Office Leasing – Queensland

“As we enter the fourth quarter of 2022, the sublease vacancy rate in the Brisbane CBD sits at 1.1% of the total base, which equates to roughly 25,000 sqm of net lettable area (NLA).”

“The brokerage (1-200sqm) segment of the market remains buoyant as opportunistic tenants continue to focus on securing high quality fit outs in ‘A’ grade plus assets, with this thematic resulting in the vast majority of better quality sublease opportunities having been absorbed.”

“As business conditions remain stable it is unlikely we will see an influx of new sublease opportunities in 2022, however, rising interest rates/inflation could see this change in 2023 if as anticipated the broader economy slows and begins to contract.”

PERTH

Andrew Denny, CBRE Senior Director, Office Leasing – Western Australia

“Availability of sublease is the lowest ever recorded in the Perth CBD and reflects strong tenant demand and number of expanding tenants in the market. Any quality fitted space, particularly space larger than 1,000sqm, is likely to be sought after. There are no signs of increased availability in the next few months.”

ADELAIDE

Andrew Bahr, CBRE National Director, Investor Leasing – Adelaide

Adelaide recorded two new sublease options in Q3, boosting the total stock of space from 4,900sqm to 9,100sqm – the second lowest level in the country.