Smaller end leads the way in office leasing tumult

The under-​strained office leasing market is being buoyed by smaller companies upgrading their premises and striking new lease deals in major cities. Picture: Robert Cianflone/Getty Images

The strained office leasing market is being buoyed by smaller companies upgrading their premises and striking new lease deals in major cities.

Small occupiers with workplaces under 1000sq m contributed 46 per cent to the overall 283,000sq m of office space leased over the first half of 2023.

Medium-sized occupiers, taking between 1000sq m and 2999sq m, and larger occupiers, taking more than 3000sq m, accounted for 26 per cent and 28 per cent of office area leased over the half, respectively. The smaller end held up in the wake of the pandemic and was rising even further this year, Colliers said.

“SMEs are also undertaking the heavy lifting for the office market evolution by reshaping cities, increasing their number of deals by 4.4 per cent and gross area leased by 3.7 per cent across all CBDs nationally over the first half of 2023,” Colliers managing director of office leasing, Cameron Williams, said.

Mr Williams said demand for offices in top locations and the “pull to precincts”, where employees benefited from public transport and attractive amenities, was elevating places like the northeastern part of Sydney’s CBD, the Paris end of Collins St in Melbourne and the River Precinct in Brisbane.

Prime assets in Sydney CBD’s core precinct had growth in net effective rents by 11.4 per cent over the past two years, beating the broader CBD, which ran at 5 per cent.

The market is battling the shift to hybrid working, but the smaller companies keep showing up to lease space. Picture: Mark Stewart

It was the highest rental growth across all precincts and office asset grades, Colliers national director of research Joanne Henderson said.

“Occupiers seeking quality, amenity and prestige also enhanced the position of prime grade assets in the eastern core of Melbourne’s CBD, which witnessed growth in net effective rents by 7.8 per cent over the past two years, as the average for the whole CBD declined slightly (-2.7 per cent),” she said.

“While the flight to quality is not new to the office sector, prime grade office area leased across CBDs nationally over the first half of 2023 was up by 4.3 per cent, compared to the first half of 2022.”

Demand for quality office spaces underpinned continued growth for premium net face rents in all CBDs over the June quarter, particularly in Brisbane and Perth.

The action at the smaller end is a pointer to bigger deals to come. “Although SMEs buoyed rents and the office leasing market over the first half, we expect a large number of deals for high-profile tenants requiring over 5000sq m of space to be agreed and announced,” Mr Williams said.

“We are already starting to see green shoots in larger deals.”