Demand for CBD office space nationally has increased marginally in the third quarter of 2015, with notable growth reported in Melbourne and Adelaide.
Colliers International’s Q3 Office Demand Index has shown a small increase of 1 per cent in national office enquiry from 527,226sqm in the second quarter to 534,226sqm in the third quarter. The index found a particular increase in enquiry for 3,000sqm-plus office space nationally, with a 20 per cent increase from the second quarter of 2015.
Melbourne saw its largest amount of demand recorded in one quarter since the beginning of 2009, with a total of 239,594sqm recorded – 59 per cent more than the same time last year.
Colliers International Managing Director of Office Leasing Simon Hunt said the Melbourne CBD leasing market was performing strongly in 2015.
“We are seeing the evolution of the modern workplace, including the growing trend towards flexible and activity-based working, acting as a key driver for tenant demand in Melbourne,” Mr Hunt said. “As companies consider making changes to their workplace, many are finding their existing fitouts are not suitable for their future needs and are looking to relocate to adopt new workplace strategies.
“We are also seeing business confidence more generally is on the rise – people are getting on with business. There is still an element of caution, but deals are being done and activity in the leasing sector is strong.
“In fact, we are even seeing, in some Melbourne buildings, a real competition for space among tenants. For the first time in many years, some tenants are even missing out on their preferred option, which points to increased competitive tension in the market, on a building-by-building basis.”
Adelaide saw an increase of 25 per cent from 40,702sqm in the second quarter of 2015 to 50,704sqm in the third quarter of 2015. This represented a 2 per cent increase year-on-year. There was a significant increase of 38 per cent in the 0-999sqm segment and of 34 per cent in the 1,000-2,999sqm segment, year-on-year, in Adelaide.
“Despite a rising vacancy rate, Adelaide is experiencing a renaissance of tenant demand as tenants become more opportunistic about the favourable market conditions that we are witnessing,” Mr Hunt said. “Enquiry levels have increased, driven by increased confidence in the economy encouraging tenants to make an early commitment.
“We expect Q4 this year to bring with it a significant amount of tenant decision in Adelaide, with the likes of NEC (3000sqm), the Department of Social Services (3,500sqm) and the Administrative Appeals Tribunal (1700sqm) all in the market to relocate.
“One of the most active components of the market is the sub-500sqm sector, with many tenants beginning to explore and make the most of the favourable conditions to upgrade their business’ office space.
“An underlying theme across all tenancy grades and sizes in Adelaide is that businesses want to increase workplace efficiency. The majority of tenants in the current market are working on an employment density of between 10-12sqm per person.
“Activity-based working is gradually being considered by Adelaide tenants, however the majority are embracing a hybrid of ABW and open plan. This is primarily to due to the scale required to make ABW efficient.”
Enquiry in Sydney decreased 15 per cent from Q2 to Q3 this year, from 204,438sqm to 173,150sqm. However, this figure is still well above the average amount of demand that has been recorded for Sydney since 2009.
“While enquiry figures were slightly down in the third quarter, activity and transactions in the Sydney office market are at healthy levels – in fact, they are up on the same period last year,” Mr Hunt said. “The tenants who are active are relocating, which often means that they are expanding. We are finding the majority of businesses we are working with seem to be growing – some modestly, some significantly.
“So, while the number of enquiries may be down, the tenants who are in the market are genuine. There also does seem to be more urgency in the Sydney market at this stage.
“In terms of recent activity in Sydney, particularly the CBD, we are seeing a number of larger transactions in the 2,000sqm-6,000sqm sector where tenants are quite active and are typically committing to space for occupation mid-2016.”