With every downturn comes opportunity

Note: This article was produced in August 2020. For an updated version of this article and the latest on office vacancy rates, click here.

According to Graham Postma, National Head - Office Leasing at Savills Australia, “Where restrictions have further eased in these key states, tenants are now back in their offices in higher proportions and enquiry and inspection levels are returning to more normalised levels.

“Some consistent themes are emerging across the country. Tenant enquiry in each state is focussing heavily on premises with existing quality fit-outs to expedite the relocation process and reduce risk in terms of fit out delivery.  

“Flexibility is also a must have with tenants leaning towards shorter lease terms to allow for future growth,” he said.

NSW Commentary

According to Tom Mott, State Director – NSW Office Leasing at Savills Australia, with every downturn comes opportunity and the tenants active right now who are seeking a flight to quality will be the beneficiaries of the deals on offer across Sydney.

“Owners are prepared to take on the sub-lease stock because they are well equipped to mobilise fit-out teams to deliver turnkey fit-outs on flexible terms.

“The vast majority of tenants with a lease expiry now or in the short term are seeking a short term hold over. The tenants who have confidence in the short to medium term are taking advantage of the sublease and direct stock available and the deals that come with those.”

QLD Commentary

According to David Howson, State Director - QLD Office Leasing at Savills Australia, with the uncertainty in the market, tenants are continuing to review their office space requirements with many no clearer as to the longer term effects on their occupation. 

“Those facing imminent expiries are looking for opportunities to extend/holdover their current leases or reset in better quality accommodation at terms similar to current passing rates.

“Current market murmurings foreshadow an influx of fitted space (both sublease and backfill) within the Prime and Secondary markets with Prime seen as potentially witnessing the greatest change in vacancy.

SA Commentary

According to Adam Hartley, Director Office Leasing - SA at Savills Australia, Adelaide seems to have survived the COVID scare much better than some of our eastern state counterparts. 

“Not only was the COVID infection contained much quicker in Adelaide but the impact on our office market appears to have been much less. 

“We have not had significant corporate business failures and there doesn’t appear to be any large scale sub-leasing in the marketplace. 

“In Adelaide, a downsizing of the workforce generally means there are a few spare workstations in people’s offices rather than whole floors of fitted out space coming onto the market through sub-lease. 

“Demand in Adelaide remains conservative, and in contrast the enquiry rate has been significantly higher than the same time last year generated mainly in the small tenant market. 

“What we have found is the SME market has been active in reviewing their options and planning for a variety of outcomes pending any further changes in the market. Whilst enquiry rate is higher, only time will tell once transactions take place as to the true market performance.

“We do expect some upward pressure on vacancy rates and incentives, but not at a level that will have any long term consequence,” he said.

VIC Commentary

According to Mark Rasmussen, State Director - VIC  at Savills Australia, the southern capital is set to overtake Sydney as Australia’s largest CBD office market.

“Major lease transactions continue albeit in lower volumes. The delivery of significant new office supply and issues relating to COVID-19 will continue to push up vacancy rates and lease incentives. 

“Increased sub-lease opportunities are providing further attractive options for tenants. Fitted tenancies are the most popular. Landlords are well advised to identify and address forthcoming vacancy issues as the market is likely to come under further pressure over the next 12 months. 

Mr Rasmussen believes transaction activity will recover strongly as COVID-19 lockdown restrictions are eased later in 2020.

WA Commentary

According to David Evans, Director Office Leasing – Perth at Savills Australia “In challenging markets, it’s crucial to look over the immediate horizon and set the foundations for future opportunities. 

“Perth’s enquiry rates have increased over the last few months with occupiers leveraging the conditions to reset rents and improve their workplace environments. 

Mr Evans said enquiries during and right before the COVID-19 pandemic began (March – May 2020) were circa 39-40 with a spike in enquires jumping to 52 from June to now. 

“Owners need to ensure any vacancies are positioned to be relevant and competitive in the market and also be prepared to provide flexibility to compete with the emerging sub-lease market.”

Learn more about Savills Office Leasing services.