Article

Sublease activity picks up in Sydney

The softening economic climate is leading to the first signs of sublease office space in Sydney

August 15, 2019

Sublease office space has reappeared in Sydney’s CBD for the first time since 2017 as M&A activity and global economic uncertainty prompts companies to reassess their space.

Sublease office space now accounts for 0.7 percent of Sydney’s total CBD office stock after being practically non-existent for the past two years. A softening of the Australian economy coupled with ongoing global economic uncertainty is to blame, says Andrew Ballantyne, head of research, JLL Australia.

“Sublease availability is a barometer of business confidence. Some organisations have scaled back headcount expansion plans in the short-term while we are seeing increasing numbers of mergers and acquisitions – all which could lead to redundant space.”

The acquisition of insurance broker JLT Australia by professional services firm Marsh & McLennan in April led to JLT releasing 3,000 square metres of sublease office space in Grosvenor Place.

It comes as the Reserve Bank of Australia decided to keep official interest rates on hold at 1 per cent in August following back-to-back cuts as it aims to drive down unemployment and protect Australia from the ongoing US-China trade war.

Globally, the International Monetary Fund in July cut its global growth forecasts for the next two years, announcing ongoing trade tensions as a major risk, while private sector employment has slowed.

Global accounting firms PwC and KPMG are subleasing the most amount of office space in Sydney: 4,600 square metres and 4,529 square metres respectively, all at International Towers Sydney, in Barangaroo.

“Sydney is classified as a global city and multi-national organisations are sensitive to changes in the global economic outlook,” says Ballantyne. “That said, the NSW economy is forecast to grow by 2.3 per cent per annum from 2020 to 2022, owing to record infrastructure spending and a medium-term recovery in the residential sector.”

Real estate efficiency

Growing numbers of businesses are embarking on real estate efficiency programmes, largely enabled by the exponential growth in flexible workspace providers, says Tim O’Connor, head of Leasing in Australia, JLL.

“Office owners should be cognisant that businesses with active requirements will be presented with more options”

“The diverse drivers of sublease space coming to market means the conditions attached won’t necessarily suit all prospective tenants. The trade-off for existing fitout and below-market pricing is often limited tenure as the companies subleasing may wish to grow back into the space.

“Landlords who continue to adjust to changing occupier needs around tenure, and who prioritise wellness, community, and an optimal experience for all building users, will put themselves in the strongest position.”

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