Sydney’s office market is off to a strong start in first quarter of 2018, with big businesses driving the majority of demand for workspace.
According to Colliers International’s latest Office Demand Index, Sydney recorded a 32% increase for 3,000sqm-plus workspace from Q4 2017 to Q1 2018; and a 63% increase compared to Q1 2017.
Cameron Williams, Colliers International National Director of Office Leasing, said the Sydney market was now seeing demand driven by a tight market that required occupiers to plan their space years in advance.
“In the first quarter of 2017, the Sydney market was still dealing with the displacement of small tenants; this has now normalised and we’re now seeing enquiry from smaller tenants being driven by both lease expiries and growth,” Mr Williams said.
“With the next supply cycle only three years out, we’re seeing larger tenants enter the market and plan ahead to make themselves available for the projects that will become available; essentially, the supply cycle is stimulating demand as these tenants are being actively pursued.
“We expect, many of these larger tenants will be approached by big backfills and major developments available in the market from 2020; and in a lot of cases that is the catalyst for them to put themselves in the market now in a formal sense.”
The Sydney market had also witnessed significant merger and acquisition (M&A) activity which was also driving demand for space, particularly with disruption occurring in the Legal and Finance sectors.
“We have seen many groups buying into partnerships and mergers between different groups particularly the mid-sized law firms, which has triggered demand for workspace in these sectors,” Mr Williams said.
“Banks have also been selling off some assets within the market, which has also contributed to more demand in the Sydney market.”
Simon Crouch, Colliers International Head of Tenant Advisory, said larger businesses were putting briefs to market earlier in Sydney compared to other markets given the tight market conditions.
“Many big companies are planning ahead to ensure they have a large number of opportunities to consider for their future office space.”
“We advise occupiers looking for space 5,000sqm or greater to commence their accommodation searchat least two to three years in advance of their lease expiry to enable sufficient time to consider the upcoming opportunities.”
Nationally, the Colliers International Office Demand Index recorded an increase in demand of 27% from Q4 2017 to Q1 2018; as well as an increase in demand across all size segments from Q4 2017 to Q1 2018.
Businesses looking for workspace under 1,000sqm increased by 55%, whilst demand for 1,000-2,999sqm increased by 15% and demand for space over 3,000sqm increased by 18% from Q4 2017 to Q1 2018.
Colliers International expects to see a flow-on effect within the Sydney CBD market where transactions for larger space were likely to increase.
Mr Williams said within the first quarter of this year, the market had already seen co-working occupiers being quite active and taking up large office space.
“WeWork has committed to York and George in addition to HCF House at 403 George, and we also understand they have reached Heads of Agreement at another two sites within the Sydney CBD,” he said.
Mr Crouch said co-working groups were typically seeking larger spaces than they had before.
“We’re now seeing enquiries for co-working spaces ranging between 2,000sqm to 5,000sqm and upwards, for examples Jobs NSW has taken more than 17,000sqm at 11-17 York Street for the Sydney Startup Hub,” Mr Crouch said.
“We’re also seeing an ongoing trend for organisations with a high level of professional sales teams moving into the CBD including Medical and Pharmaceutical companies who had typically always been suburban tenants.
“These tenants are moving into the CBD so they can reposition their business and attract and retain the best talent.”