Office leasing activity has surpassed pre-COVID levels as companies, such as trading house Optiver, look to take advantage of intense competition between office landlords to attract tenants.
The amount of office leasing space transacted nationally reached 615,000 square metres as of October, up from 506,000 square metres in 2022 and 550,000 square metres in 2019, according to Colliers data. There have been 988 CBD office lease transactions nationally in 2023 so far, up from 877 in 2022 and 747 in 2019.
Mirvac will be happy to get Optiver into Westpac Place, especially after Westpac opted to vacate about 16,000 sq m of space. Andrew Quilty
The increase in leasing transactions was due to a jump in larger occupier deals over the past quarter, Colliers office leasing head Cameron Williams said.
“Larger occupier deals accounted for 50,000 square metres leased across national CBDs over this period, compared to 23,000 square metres for Q2 this year,” Mr Williams said.
“It feels like there should be bigger headwinds due to parts of the market being challenged. You would think going into a slower economic environment but that has not really come through in the data.”
Recent deals include Optiver signing up for space in Sydney’s Westpac Place. Optiver will take up 9255 square metres in the new digs and leave its Hunter St office.
The move into Westpac Place is welcome news for Mirvac as Westpac had vacated nine floors in that office, which equated to about 16,000 square metres.
In another Mirvac coup, tech unicorn Advanced Navigation has made a pre-lease commitment to move into 55 Pitt St once it is completed. It will take up 6000 square metres in the new office. The company’s new headquarters will be used to design products that will then be built at its new $3 billion robotics factory in Botany, chief executive Xavier Orr said.
“With the significant scale-up of our manufacturing at Botany, 55 Pitt Street will support a similar rapid scale-up of our head office development staff,” he said.
According to a Macquarie analyst note, Mirvac holds the least risk among listed office landlords as it has stronger relative occupancy rates and most of its office assets were in core CBD locations.
“Mirvac is our preferred office exposure in a challenging fundamental environment,” Macquarie wrote in the note.
Other office leasing moves include grain handling giant Graincorp going from 175 Liverpool St to Barangaroo’s International Tower Two where it will take up one and half floors – the equivalent of around 3300 square metres – under a deal to sublease Westpac office space.
Westpac decided to sublease its International Tower Two space last year as part of its efforts to adapt to flexible work, and still has around two floors open for sublease. The bank has so far reached subleasing deals with TPG and Graincorp.
The increase in leasing activity in Sydney and Melbourne is being driven by the improving affordability of office space, according to Macquarie.
“Assuming a typical lease term of around five years, we estimate that the relative cost to upgrade into prime space is at or towards historical lows in Sydney and Melbourne, suggesting tenants may look to upgrade where they are maintaining an office footprint,” its analysts wrote in a client note.
However, in Brisbane, prime net effective rents have already started to improve again because it has stronger office market conditions than Sydney and Melbourne.
Office demand from small businesses is showing no sign of abating. Deals for less than 1000 square metres comprised the highest proportion of office leases during Q3, according to Colliers data. About 100,000 square metres of that type of space was transacted over the quarter, which was the same as last year.
Real estate advisory firm LPC’s Julian Kurath said there could be more deals in the weeks before Christmas, but warned companies have been hesitant to sign new deals amid turbulent economic conditions.
“Some deals should have been signed months ago, but they’ve dragged on. They’ve only started to pick up pace with Christmas coming up,” Mr Kurath said.
“But with vacancy levels the way they are, tenants are not forced to sign deals. It’s not as important. There’s even the thinking that will there be an economic change over Christmas break that changes conditions. So, while leasing discussions have picked up, there may not be deals secured.”
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