In a tenant-favourable market, outstanding office environments are critical to engaging and retaining employees

SYDNEY, 12 November 2021 – As the office market recovery gains momentum, market conditions are in strong favour of tenants, according to a new national report from JLL, Tenant Perspectives.

JLL’s Q3 2021 office statistics show that offices are becoming more important than ever before and building outstanding office environments will be critical to engaging employees.

As the competition increases to secure strong, long term tenants, landlords are putting more emphasis on attraction and retention strategies, including offering higher incentives, amenity and customer experience strategies that cater to the needs of employees and encourage loyalty.

JLL’s Head of Tenant Representation – Australia, Michael Greene said, “For the first time ever, that we are aware of, the incentives to stay put are on a par with those to relocate. We are now firmly in a market favouring tenants.

“Corporate tenants and their people now expect much more from the office. The workplace is no longer solely defined by a tenant’s premises, now extending to the whole building, its services, amenities and conveniences.

“Occupiers are looking at incorporating key initiatives including virtual collaboration tools, wellbeing programs and employee experience initiatives. In Sydney, we have seen an 8% increase in the loyalty rate - from 26.5% at the end of June 2020 to 34.5% at the end of June 21. Most notably, in a reduction of rent across all grades by up to 13%.

“Tenants are re-considering their working styles and workplace needs. In every office market across Australia, post-pandemic workplace strategy has an increasing focus on hybrid working arrangements, allowing tenants to both rationalise their space requirements and improve employee satisfaction.

“As part of this, occupiers are choosing to implement strategies that are highly personalised to brand and culture values as well as people and community requirements. This is part of what makes office space requirements and the evolution of the workplace so interesting - it’s not a one size fits all approach,” said Mr Greene.

Australia’s CBD markets at a glance:

Adelaide: JLL’s Tenant Representation – Adelaide Senior Director, Jessica Van Raay said, “Prime Grade assets saw a decrease in vacancy from 14.8% last quarter to 12.4%, while Secondary Grade vacancies increased to 19% (the highest Secondary vacancy rate recorded since mid-2017). Similar to other states, the tenant favourable conditions have allowed occupiers to upgrade their accommodation.”

Defence, Aerospace, Technology and Public Administration are the key growth sectors in South Australia.

Brisbane: JLL’s QLD Head of Tenant Representation, Dirk Van Velden said, “It’s an exciting time to be in Brisbane with a number of new developments and infrastructure projects in the pipeline. Both the Brisbane CBD and Near City markets have seen new supply enter the market with significant vacancy upon practical completion. 

“The Secondary Grade market still has inflated vacancy; however the brokerage section of the market has proven to be quite buoyant and a substantial percentage of transactions sub 600sqm have been completed with either an existing or spec fit out in place.”

Prime vacancy is 10.6%, with A-Grade vacancy currently at 18.2%.

Canberra: JLL’s Tenant Representation – Canberra Senior Director, Andrew McDonald said, “The Canberra office market has recorded positive net absorption every year since 2018, with the trend of significant positive net absorption in 2020 (over 10%) continuing into 2021. We are seeing significantly lower face rentals and more moderate incentives than other CBD office markets.”

Vacancy in Canberra has continued to decline, contracting to 7% in 2Q21, with prime grade vacancy at only 4.1%. The Parliamentary Triangle and Barton is experiencing less than 2% vacancy.

Melbourne: JLL’s Tenant Representation – Melbourne, Ed Hill said, “There are many factors affecting the Melbourne market and therefore the types of space being allocated by companies. The majority of new developments have leased well, however most of the tenants have jumped over from other Prime Grade assets. Prime Grade asset vacancy is at 16.1% compared with Secondary Grade at 12.4%.”

The main industries growing in Melbourne are around Government, Healthcare, Professional Services and Technology.  Due in large part of the onflow effects of the global pandemic, Healthcare is one of the only sectors to have a net growth in large occupier moves (>1,000sqm) over the first three quarters of this year.

Perth: JLL’s WA Head of Tenant Representation, Andrew Campbell said, “Tenants continue to take advantage of favourable market conditions by moving to better quality buildings. This is evidenced by the gulf in vacancy by grade with Prime Grade vacancy 14.4% compared to Secondary Grade vacancy 26.2%.”

“Mining and Professional Services are still very much the active players in the Perth market. Mining evidenced by FMG expansionary move at 6 Bennett Street while from a Professional Services perspective, Southern Cross Electrical Engineering centralising into 225 St Georges Terrace. Other sectors contributing to take-up include Government and Healthcare – reflecting recent and national demand from these sectors.”

Sydney: JLL’s Tenant Representation – Sydney, Senior Director Luke Dutton said, “For Sydney, leasing activity over 2021 has been largely driven by the Finance and Insurance Services Industry, with many businesses in expansion mode. Moelis Australia leased 3,800 sqm in Brookfield Place, relocating from 1,800 sqm in Governor Philip Tower, 1 Farrer Place. Bank of Queensland leased 7,300 sqm at 255 George Street and will be consolidating from 5,900 sqm at 2 Chifley Square and 1,400 sqm at 126 Phillip Street. Tyro leased 6,300 sqm at 55 Market Street, expanding out of 3,800 sqm in 155 Clarence Street.”

“Conversely, the Government and financial services have been industries both consolidating or offering sublease space to market. The Public Administration has continued its efforts to decentralise many of its department’s headquarters out of the CBD into suburban and metropolitan office markets.”

As at 3Q21, Premium Grade vacancy is currently at 8%. This is significantly lower than the headline vacancy rate of 13% for the overall Sydney CBD market. Additionally, vacancy is concentrated in older stock as the vacancy rate for newer buildings (less than 10 years old) is 7.2% and is significantly lower than the vacancy rate for buildings older than 10 years, sitting at 14%.

JLL’s national report, Tenant Perspectives, can be accessed here.