Positive indicators for the Sydney CBD office sublease market

The Sydney CBD’s sublease office market is showing signs of stabilisation, with new CBRE data highlighting a slowing in the quantum of new stock hitting the market.

While the city’s supply of sublease space inched up in Q3 to 139,739sqm, the quarterly increase of 4,159sqm was a significant improvement from the 31,228sqm hike recorded in the previous quarter.

The flow of new sublease listings also slowed as the third quarter progressed, with volumes declining from August to September.

CBRE Research Manager Thomas Biglands said, “One of the primary drivers of the increase in sublease levels over 2023 has been large occupiers giving back space as they adopt flexible or hybrid work policies and shrink their footprints. In Q2, CBRE tracked nine listings of 5,000sqm or larger, which accounted for more than 70,000sqm of sublease space – representing over 50% of the total sublease availability. This trend slowed over Q3 when no new listings of over 5,000sqm were brought to market.”

Sydney CBD Volumes and Vacancy Rates

CBRE’s report highlights that interest in Sydney’s sublease stock has also gained momentum, given that much of the space is in core locations and offers high-quality fit-outs.

This helped reduce the supply of sublease stock greater than 5,000sqm to 65,573sqm in Q3.

CBRE Office Leasing Director Chris Fisher noted, “The ongoing recovery in office occupancy, the continued flight to quality and an increase in flight to value by tenants is now leading to optimism that sublease levels may begin to decline over the final quarter of 2023.”

CBRE’s data shows that the Banking & Finance sector continued to account for the greatest share of sublease availabilities in the Sydney CBD in Q3, representing 33% of the total.

“While return-to-office rates amongst these firms has continued to improve, back-office jobs within these companies have continued to be completed from home for large portions of the week and this is dampening space requirements from these tenants,” Mr Fisher said.

“The next largest contributor to sublease volumes was the Tech & IT sector, at 19% of the CBD total. These firms were the first to embrace hybrid work arrangements and these strategic adjustments have resulted in reduced office space requirements from this sector.”

The most common location for sublease listings in Q3 was the CBD Core precinct. Additionally, 84% of sublease availability was in Premium or A-Grade assets. These findings align with the most common locations and asset grades targeted by Banking & Finance and Tech & IT firms.

Contraction continues to be the most common reason for occupiers to hand back space due to the shift towards hybrid working.

This was the driver behind 54% of the sublease space on the market as of Q3 2023 according to CBRE’s data, with the next most common driver of sublease space being consolidation, representing 24% of the total.

“While these trends will likely persist over the near term, their impacts are expected to diminish as vacancy conditions tighten and occupiers build conviction around their future office requirement due to rising return-to-office rates,” Mr Biglands said.