Small to medium tenants leading the office leasing market

CAROLYN CUMMINS | The Sydney Morning Herald

Small to medium office tenants are leading the charge in the leasing market and are now responsible for the bulk of the take-up in the sector.

This has led to a clear division emerging in the way small and large corporate occupiers are addressing their office requirements post-pandemic, new CBRE research has shown.

While the larger tenants are downsizing, such as Westpac vacating 16,000 square metres at 275 KentStreet in Sydney, spaces of around 1000 square metres are being snapped up by a range of tenants from consultants to tech experts who prefer a smaller office to working from home.

In a new Office Footprints report, CBRE data highlights tenant size has become a major predictor of whether occupiers are going to expand or contract when making a leasing decision, with smaller tenants growing their footprints and larger corporates typically doing the opposite.

CBRE head of office research Tom Broderick said an analysis of national office leasing deals from the first quarter of 2021 to the second quarter of 2022 showed that sub-1,000 square tenants grew their footprint by an average of 20.4 per cent.

In the 1,000 square metre to 3,000 square metre space tenants expanded by an average of 11 per cent, while larger tenants of over 3,000 square contracted by an average of 12.6 per cent.

“Smaller businesses have typically grown their headcount over the past few years and are also wanting more collaboration space and smaller meeting rooms within their offices,” Broderick said.

“In contrast, larger corporates have typically been slower to return to the office and are seeing opportunities to cut costs by reducing their footprint as they increase desk sharing ratios.”

JLL head of office leasing Australia, Tim O’Connor added that new business formation has been strong over the past few years and the expansion of small to medium companies is contributing to positive net absorption across most Australian office markets.

One deal was by the financial consultant Lorica Partners which leased 234 square metres at part of level 11, 68 Pitt Street from Charter Hall. JLL’s William Conry negotiated the deal at a rate of $1,162 per square metre gross for five years.

But the deals are against the backdrop of the uncertain economic environment with Dexus head of research Peter Studley saying, in his latest Australian Real Estate Quarterly Review for the fourth quarter, that Australian office markets are in varying stages of the supply cycle.

“Sydney and Brisbane are expecting relatively few office completions over the next 24 months. This should provide scope for a reduction in vacancy rates if demand is positive,” Strudley said.

“So far this year, smaller occupiers have been responsible for the bulk of the take-up in the sector. This has led to moderately positive net absorption, constrained somewhat by the larger users.”