Banks lead charge in mid-sized office market
The mid-market has emerged as the sweet spot in office leasing at the start of this year but big requirements from banks looking to split their operations and from flexible space groups could see larger deals struck later this year.
The Commonwealth Bank is weighing up moves to space in both Barangaroo South and at Circular Quay in Lendlease towers while the election could also prompt some shifts, with the Department of Defence looking for new digs in Canberra, Sydney and Melbourne.
An index kept by Colliers International recorded 644,619sqm of demand for office space in the first quarter, a 3% lift on the same time last year.
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But demand for office space spanning 1000-2999sqm jumped by one third by area and a huge 41% spike was recorded in the number of inquiries.
Colliers International managing director of office leasing Simon Hunt says the mid-size market has seen large increases after a period when larger companies had dominated as they sought to lock in floors in new buildings.
“However, we may see demand for office space over 3000sqm increase during 2019 due to the upcoming federal election and the financial sector seeking more space due to the Royal Commission,” Hunt says.
Demand for space jumped in Brisbane, North Sydney and Canberra, in the first quarter of this year.
Colliers International says this is due to tightening conditions in CBD locations and the fact that much of the demand last year was for larger spaces.
Hunt says the finance and flex-space sectors are driving demand for offices in major markets.
“We have already seen positive inquiry levels for the first quarter of 2019 and we do expect to see these sectors inquiry to grow during the year due to the royal commission and the trend of flex-space becoming more prevalent and essential for businesses,” he says.
So far, the IT and education and training sectors have dominated activity. Trinity College just committed to 7760sqm at 611 Elizabeth St, PDG’s new Melbourne project, in deal by Colliers International’s Edward Knowles and Michael Darvell.
“We should see an increase in activity coming through from the finance, flex-space and government sectors throughout the remainder of the year, with the impending federal election a contributing factor,” Hunt says.
Colliers International says that more flexible operators — like WeWork — have deals pending across major capital cities and the firm expects them to be active this year.
“We also expect to see a number of deals announced in the finance sector, particularly for those who are seeking to separate business functions off the back of the royal commission,” Colliers International’s director of tenant advisory Anthony Clark says.
“At present, most of the major institutions have an active requirement of this nature,” he adds.
Although the Sydney market is tight at the moment, the firm expects more supply and the associated backfill space will mean there will be large tranches of contiguous space from late 2020 onwards.
This article originally appeared on www.theaustralian.com.au/property.
