Covid-19 Office Leasing Disputes Remain High


The number of tenants putting office leasing requirements on hold sits at 32 per cent as the country closely watches Covid-19 levels and restrictions.

Office leasing mandates on hold dropped 11 per cent on Australia’s east coast, down from 43 per cent in April, according to Knight Frank’s office market insight.

The research found 19 per cent of active mandates had reduced their size requirements and 12 per cent of tenants had opted to stay put, or withdrew from negotiations.

Brisbane had the fewest deals on hold at 11 per cent in June, down from 30 per cent in April, and compared to 39 per cent in Sydney and 33 per cent in Melbourne.

Despite leasing conditions improving, all CBD office markets recorded negative net absorption, while vacancy increased from 8.4 per cent to 10.2 per cent in the second quarter.

Deals under negotiation during Covid-19

Knight Frank office leasing graph during Covid-19 in Australia

^ Source: Knight Frank, eastern seaboard results

Knight Frank chief economist Ben Burston said the drop in the proportion of leasing deals on hold was evidence that unwinding restrictions had restored some business confidence.

“While many businesses remain cautious, the data reveals an increased preparedness to make decisions regarding their office space compared to April,” Burston said.

“However, the reinstatement of restrictions in Melbourne comes as a further blow, and we expect many businesses to remain cautious about making new lease commitments until there is greater clarity on the extent of the second wave and the evolution of fiscal support measures post-September.”

Knight Frank national head of leasing Andrea Roberts said many tenants were still adopting a wait-and-see approach, but there was increasing activity in Australia’s office leasing market.

“Enquiry levels are noticeably picking up month-on-month in all capital cities with the exception of Melbourne in May and June, with more than 60 per cent of enquiries in the sub-500 square metre market,” Roberts said.

“Subleasing space continues to increase further as tenants assess their short-term space requirements due to social distancing guidelines, return-to-work expectations for 2020 and the adoption of remote working policies.”

Related: Survey Lists Best Cities for Jobs During Covid-19

Leasing by sector

Professional services tenants accounted for the biggest sector moving forward with select leasing mandates after holding in April, with its share of deals tracked rising from 19 per cent in April to 24 per cent in June.

The tech sector also remained active in deal progression, accounting for 14 per cent of active mandates in advanced negotiation or at-home owner associations or signed leases, despite being down from its 23 per cent share in April.

Overall, Australia’s office market has fared better during Covid-19 than some overseas markets, with the market sights report finding the average occupancy is higher than across the key cities in the United Kingdom and United States.

Australia’s occupancy is around 43 per cent, slightly higher than the 40 per cent of key cities in the UK, and more than double the 20 per cent of key cities in the US.

“Our highest office market occupancy rates are in Perth and Adelaide, where occupancy is at 70 per cent, followed by Canberra at 50 per cent, Brisbane at 40 per cent and Sydney at 30 per cent,” Roberts said.

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