News Blog - Commercial

25 July 2016

DON’T REST ON YOUR LAURELS

The Sydney CBD office leasing market is seriously HOT at the moment and the market has now turned in favour of the landlord. This hot streak can be actively attributed to net absorption rates running above trend for an extended period of time, which means long gone are the days of huge leasing incentives to lure prospective tenants.

TROUBLED TENANTS

Current vacancy levels are at a very meagre 4% (approximately) meaning you will be hard pressed to find a number of leasing options, especially in the 50 – 300 sqm segment. Additionally, the Sydney Metro rail scheme has compulsorily acquired approximately 7 buildings in the CBD, which will result in over 230 tenants being displaced. These tenants are now in the process of finding new office space. Alarmingly, there are also various commercial to residential developments (such as 1 Alfred Street and 71 Macquarie Street)in the pipeline where tenants will also be given notice. As you can imagine, all of this combined is placing a huge strain on office supply levels.

TAKING ADVANTAGE OF THIS HOT STREAK

More recently, the giant Chinese consortium Poly Real Estate (a subsidiary of $125 billion Poly Group Corporation) purchased two office buildings on George Street in Circular Quay  for $160 million. This is nearly 60% more than what it was sold for over a year ago. Poly is banking on the aforementioned hot streak, as well as recent changes to CBD development laws, that will allow the buildings to extend their height, and consequently the lettable floor area.

WHY YOU SHOULDN’T REST ON YOUR LAURELS

When these same buildings were put up for sale in 2015 the marketing collateral indicated that rents for the B-grade buildings would fall around the $600/m2 mark. Due to the new CBD development laws and the Sydney Metro rail scheme, rates for B-grade properties have recently been fetching closer to $850 per square metre.

Twelve months ago one could easily find a 250 sqm office that would attract a 25% incentive on a 5-year term. Today, that same office would be lucky to attract a 15% incentive and the rental would most likely increase by around $25 per m2. Given the competition and limited options my advice to anyone actively looking to lease office space would be to act quickly. If you find a suitable option and are happy with the location, size and rental, don’t rest on your laurels and snap it up before someone else does.

TIME IS MONEY

We are finding that inquiries who have missed out on options due to competition are less likely to try and negotiate terms on the second or third time around. Also, don’t forget that inspecting offices can be a very time consuming exercise, often taking hours, all of which can take you away from your core business, eating away at your precious ‘money-making’ time.

WHAT YOU NEED

To find a suitable office in the current market you need to find a dedicated agent who will effectively cover the market for you, taking the task of searching for space and negotiating with landlords out of your hands. With access to a wide range of offices for lease, TGC’s leasing agents are best placed to help you with your proactive office search. Our aim is  to make your property experience as hassle free as possible and connect you with your perfect space. Get in touch with us today so we can get started!

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Date: 25 July 2016 Author: Adam Hennessy
Commercial
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About the author:

Adam Hennessy

Adam Hennessy has been involved in the Sydney commercial real estate industry for over 16 years and is Director of Office Services at TGC. After owning Ray White Commercial Sydney Leasing, Adam joined TGC in January 2007 with a mandate to grow TGC’s office services portfolio.

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