Companies trying to find a new space are dealing with vacancy rates of 5% or less, tenant advocates are under pressure to find suitable spaces, in the right places, at the right prices, and leasing agents are also struggling with the low supply of offices to lease out.
The low supply and high demand has driven up pricing and in some ways, is quite similar to the all familiar outrageously priced Sydney housing market. The squeeze on commercial property has been created by projects like the Sydney Metro, where the Government is purchasing buildings to redevelop the city’s transport network and, due to restrictions on city building developments. No amount of money in the hands of those looking for a lease will fix a supply issue. As a group, people are expecting to have to ride out these tight times until at least 2019 before more “crowd pleaser” developments come on the market.
Robert Dickens of Savills expressed that companies may need to be innovative in the way they operate to cope with the current marketplace. While Rob is the National Director of Office Leasing, or a leasing agent (this role leases out space on behalf of a landlord), Savills themselves recently went through the transition from traditional to activity based working to help accommodate their office move. The significant change allowed Savills to reduce their office square metres and whilst it can be seen as a big change, Robert says 99% of staff have embraced the new environment.
Graham Crozier, CEO of Coface, highlighted that his company is in the business of insurance, not property, so hiring some help in the form of a tenant advisor certainly helped with securing their new Sydney office, for their move that occurred in May 2017. Their biggest challenges were finding a space to suit the size of their SME company and understanding how to exit their existing contract. This included a make good and other commitments to the landlord. Some of these obstacles, even to the savviest CEO, could have come as complicated and expensive hoops to jump through.
From our audience, David Fenech, Director of Office Tenant Advisory, said that there are still good deals out there but they must be searched for, adding that he was off to check out at least 8 properties for clients just today.
Working from home options and co-working were dismissed as long term pressure valves for the bursting Sydney CBDs. Discussions covered that these places are also already 90% full and have their own segment who prefer this set up. More dispersed CDBs like Parramatta and Homebush were more likely ways to accommodate the demand for space.
In the end, it comes down to what’s best for each company and the question: Should you stay or should you go? And, in both cases, companies need to become smarter with design, layout, fitouts and smart furniture to accommodate the “Sydney Squeeze”.