Tenants let expansion options lapse

Carolyn Cummins February 15, 2012

CITY tenants are now erring on the side of caution in their expansion plans due to concerns about the global economic outlook.

This has led to pressure on landlords to keep rental growth at a minimum or even drop rates to fill the space.

While vacancy in the Sydney central business district sits at 9.6 per cent, space that had been earmarked by existing tenants for expansion is now being shelved.

Most sublease space in a city comes about as tenants take an option on extra floors in the good times but then let the contract lapse as staff numbers contract. It is generally one or two floors in high-grade buildings that then become hard to re-let, except to small businesses.

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One of the more prominent spaces still available for lease are the top two floors at the Dexus/CBus skyscraper at 1 Bligh Street in Sydney. Clayton Utz is the anchor tenant but preferred to lease the middle floors.

Dexus's half-year results are out today and analysts are hoping for some leasing news.

Despite this, CBRE's latest Sublease Barometer indicates there was a slight decrease in the amount of sublease space in the Sydney CBD over the eight months to last December.

There is about 37,841 sq m of sublease space currently available in the CBD, well below the 20-year average.

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But the Sublease Barometer indicated the Sydney city core remains the location most affected by sublease vacancy, accounting for 51.1 per cent of the total number of opportunities, while The Rocks precinct has the least amount with no recorded vacancies.

The director for office services for CBRE, Jenine Cranston, said that space vacated by tenants in the finance industry continued to account for the majority of sublease opportunities, followed by the legal sector.

"This is driven by the tenant types in these precincts, with the CBD core housing a high proportion of finance sector tenants," Ms Cranston said. "We are hopeful that the financial services sector, which accounts for the largest quantum of sublease space, has limited contraction planned for 2012.''

For general office leasing conditions, the Colliers International national director of Office Leasing, Cameron Williams, said the second-half of last year was the busiest in terms of transactions for both the Sydney CBD and metropolitan offices in more than a decade.

"Compared to the same time in 2010, the number of new lease transactions were up 34 per cent [at 329 transactions], clearly indicating confidence in the market place," he said.