In the second annual Cushman & Wakefield Office Leasing Trends and Outlook Survey, landlord and tenant representative’s views on the office leasing markets in Sydney, Melbourne and Brisbane are measured. The report highlights both the latest thinking on markets and notes how opinions have evolved over the past 12 months.
KEY CHANGES FROM LAST YEAR
- Business sentiment has improved in Sydney, Melbourne and Brisbane.
- Respondents expect a stronger decline in vacancy in Brisbane (300bps), but this will still leave vacancy in double digits.
- Rents are anticipated to continue to climb in Sydney and Melbourne, however expectations of how steep that rise will be have been tempered to less than 10%.
- Landlords in Sydney and Melbourne have become firmer in their negotiating positions.
- Scientific and technical services companies, such as engineers, are expected to provide increased demand in Brisbane over the coming year.
- As occupancy costs have risen over the year, tenants have focussed more closely on building quality in an attempt to achieve greater value for money.
- As proposed changes to Accounting Standard AASB 16 draw near, both tenant representatives and landlords think that a greater proportion (50%) of tenants will not be fully prepared when they come into effect on 1 January 2019.
MARKET CONDITIONS AND OUTLOOK
- Vacancy is expected to decline in all three markets, but it is in Brisbane that respondents anticipate the strongest decline over the next 12 months.
- Approximately two thirds of tenant representatives and landlords hold expectations of at least 5% efective rental growth in the Sydney and Melbourne CBDs over the next year, however they largely expect growth to be flat in Brisbane.
NAVIGATING THE DIVIDE
- Flexibility from Sydney and Melbourne landlords has declined in the past year, particularly on face rents and reviews.
- In Brisbane, tenants retain the upperhand and as such landlords are flexible across all metrics, though prefer to preserve face rents.
WHAT TENANTS WANT
- There are three tiers of important leasing attributes for tenants. Tier one includes financial and locational considerations, while tier two has a focus on building attributes.
- Third spaces such as food and beverage facilities and co-working facilities are increasingly becoming a talking point in the leasing market as a requirement of tenants. Wellbeing ratings such as the WELL certification are not yet on tenants’ radars.
- Office relocations in Sydney and Melbourne are most likely to be driven by lease expiration, while in Brisbane the opportunity to upgrade office accommodation is the strongest driver.Both landlords and tenant advisors are clear
that responsiveness is the most important factor in the lease negotiation process.
Download the full research here.