Office subleases in the Melbourne market
How can we assess sublease vacancy in the Melbourne CBD?
Melbourne, 20 November 2020 – At the outset of 2020, before the impacts of COVID-19, the Melbourne sublease vacancy was sitting at 0.7% of total stock. In October the Melbourne CBD office market experienced increasing levels of sublease vacancy, around 117,200sqm - 2.3% of total stock. With additional sublease vacancy likely to come online in towards the end of Q4, as occupiers shift into decision-making mode.
JLL Research’s analysis of Melbourne CBD sublease market, in ‘How can we assess sublease vacancy in the Melbourne CBD?’ provides an indication of how corporate occupiers are thinking about future workspace requirements and flexibility if we consider sublease space within new supply completed in 2020.
Annabel McFarlane, Senior Director, Strategic Research – “Melbourne’s CBD office supply cycle has delivered seven brand new office assets (329,000 sqm) to the market in 2020. Overall, the assets are 95% pre-committed to 41 tenants. At the time of signing their leases, 63% of these tenants, by number, committed to more space than they already occupied. A number of pre-covid themes are evident by sector; professional service sector tenants were more likely to downsize in the process of moving but technology and financial service sector tenants were more likely to expand.”
The latest JLL Melbourne sublease report highlights a number of tenants that have relocated into new assets this year, specifically 80 Collins Street South, 130 Lonsdale Street and Two Melbourne Quarter, have subleased some of their new space, most likely giving up future expansion space. We haven’t seen this trend in Sydney or Brisbane CBD markets where new supply volumes are not as large.
All of these new buildings include flexible space solutions within the product. This could be an early indicator of the trend towards flexibility that we have already observed, these and future tenants may opt for landlord provided flexible spaces to accommodate future expansion rather than making allowance for expansion space within the tenancy itself. An acceleration of a trend that is likely to favour the landlords and developers that can accommodate flexible space solutions within their assets or portfolios.
Uncertainty around the short-term economic impacts of COVID-19 saw a sharp increase in sublease vacancy in the Melbourne CBD. Rising from 0.7% to 1.4% (68,700 sqm) in Q2 2020, during the first wave, and then again to 2.3% (117, 200 sqm) in Q4, due to Melbourne’s extended lockdown.
Nick Drake, Joint Head of Leasing - Victoria – “Sublease space will continue to be attractive for some organisations, providing cost saving and shorter-term leasing opportunities. However there are a large portion of organisations who will continue to gravitate to direct lease opportunities for a range of factors including the ability to design a workplace tailor-made for their specific needs ensuring maximised productivity and engagement, especially important in the post COVID-19 environment. As well as, a direct relationship with the landlord, reducing risk and increasing flexibility and tenure.”
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