Sublease stock in Sydney CBD hits 10-year high

Sublease office space in Sydney’s CBD has surged to a 10-year high, but COVID-19 hasn’t been the primary cause, according to analysis by commercial agency CBRE.

CBRE’s latest Sublease Barometer showed the total sublease space in Sydney increased by nearly 10,000 square metres in the first quarter of 2020, to 82,739sqm.

At the end of Q1 last year, sublease vacancy was 28,706sqm.

CBRE office leasing director Chris Fisher said much of the increase was due to tenants committing to new developments or leasing refurbished space.

Mr Fisher said tenant relocation accounted for 51 per cent of the sublease stock available at the end of Q1, while 31 per cent of the increased availability of space was due to tenants contracting, while 9 per cent was tenants consolidating.

“In the strong market pre COVID-19, developers, landlords and tenants were willing to carry tenant lease tails to secure tenancy commitments,” Mr Fisher said.

“However, the availability of sublease stock is continuing to rise, and we expect this to continue throughout 2020 as the impact of COVID-19 filters through the market and a growing number of tenants look to offload surplus space.”

Mr Fisher said 84 per cent of the current vacant sublease space was fitted out, while 65 per cent of the supply was premium and A-grade stock.

“We are already seeing tenants alter their requirements, honing in on fitted stock which allows them to avoid capital costs and reduce rent via incentives in the form of rental rebates, which lowers their effective rent,” he said.

“However, many tenants are also adopting a wait and see approach as they contemplate the effects of COVID-19, the impacts on their business and what their future office requirements will look like.”