Large space requirements are driving a spike in demand within Australia’s key office markets, with Colliers International enquiry data showing a significant year-on-year increase in the first quarter of 2015.
According to Colliers International’s Q1 Office Demand Index, businesses enquired on 540,455 sqm of space across major CBD, fringe and metropolitan office markets nationally in the first quarter of this year, compared to 416,741 sqm recorded in Q1 2014. This represents a marked increase of 39 per cent.
Demand increased year-on-year in almost all major markets including Melbourne, which recorded a record-breaking quarter. Also in positive territory were Sydney, Brisbane, Adelaide and Perth. In Sydney, demand increased from 160,891 sqm in Q1 2014 to 161,766 sqm in Q1 2015.
“The Sydney CBD market continued the momentum gained in the last half of 2014 into the first quarter of 2015, with consistent demand particularly in the smaller end of the market,” said Simon Hunt, Colliers International Managing Director of Office Leasing. “Encouragingly, demand for prime grade buildings improved with good levels of enquiry for 1,000 – 3,000 sqm.
“Demand from new technology companies continued with a preference for a midtown or Martin Place location. We expect prime, core-located buildings to experience an improvement in enquiry during 2015 as occupancy in the better quality buildings of the midtown and western corridor reaches 100 per cent.”
Colliers International recorded 227,951 sqm of enquiry in Melbourne in the first quarter of 2015, approximately 110,000 sqm more than the same period in 2014. “The Melbourne market has again seen another record-breaking quarter for demand, with enquiry levels not seen since the September 2009 quarter when 212,209 sqm was recorded,” said Mr Hunt.
“The trend we witnessed in the latter part of 2014, whereby suburban tenants looked to capitaliise on market conditions by relocating to the CBD, has continued in the first quarter of 2015 with the likes of Just Group, Porter Davis and Guild Group in the market for large floorplates in the CBD.
“More broadly, the Melbourne market is off to an excellent start to the year with on-the-ground enquiry levels supporting the data. There have been some sizeable briefs hitting the market, including the State Government (Department of Environment, Land, Water and Planning) for 25,000 sqm and Link Market Services for about 25,000 sqm.
This all contributes to a spike in demand in Melbourne in the first quarter.” A spike in enquiry was recorded in Brisbane, from 47,453 sqm in Q1 2014 to 58,790 sqm for the same period this year. Adelaide recorded an increase to 45,298 sqm, from 40,400 sqm in Q1 2014.
“The Brisbane office market has had an encouraging start to 2015, with new development activity within the CBD and fringe markets and favourable commercial terms available to tenants stimulating demand,” Mr Hunt said.
“In Adelaide, we have seen a significant improvement in enquiry for smaller lease spaces, sub-500 sqm, which is driving demand. Across the market it is business services and medical services which are driving the pick-up in enquiry, with many of these tenants planning to relocate from their current accommodation.”
Mr Hunt said the national increase was also, in part, due to a shift in the type of office space businesses were enquiring after. “In the first quarter of 2015, we have seen an increase in enquiries for space above 3,000 sqm, from 107,050 sqm in Q1 2014 to 220,550 sqm this year,” he said. “This is an 89 per cent rise in demand from businesses for large space.”
Demand for mid-range leasing stock, from 1,000-2,999 sqm, jumped 59 per cent year-on-year to 172,561 sqm. Demand for small space, up to 999 sqm, decreased 27 per cent to 147,343 sqm in Q1 2015. “In terms of deals done in the first quarter of this year, there has also been a 39 per cent increase on the area transacted from 61,637 sqm in 2014 to 85,722 sqm in 2015.”
Doug Henry, Colliers International Head of Corporate Solutions, agreed enquiry levels remained high as tenants continued to take advantage of market conditions to relocate, reposition their business into higher quality accommodation or renegotiate their lease to benefit from market conditions and secure cost savings.