Sydney leasing market set for burst of activity

What an interesting year it has been in 2013. A number of large pre-commitments from Ernst and Young and DLA Piper, and some solid renewals from Citi and Telstra, have coincided with big moves from the likes of ANZ and Herbert Smith Freehills.

This is the same story across the market, where the fight to retain existing tenancies has blurred the lines both on renewal deals and new deals to entice outside tenants.

Much importance has been placed upon retaining tenants, and locking in lease terms for at least three to five years has meant that owners have been offering on-par incentives for existing tenants to stay put. These sorts of incentives have previously never been seen in the Sydney CBD market and there is indeed some strategy behind ‘not just throwing the baby out with the bath water’.

It has been a tough year, with increasing vacancy rates including sublease options, but signs the economy as a whole is moving has seen the resurgence of the recruitment industry, which historically has been a fairly accurate barometer of the market.

The usual rush leading up to the ‘silly season’ has left its run very late this year, albeit with a hive of activity on its way for the next month or so.

The market movers in recent times have been from the 100-300 square metre tenancies, which have had considerable activity in the general lease expiry, growth/downsize area.

Typically, these businesses require fitted-out space, and this has meant that the supply of good quality, fitted-out space has been notably low.

Even if you look at availability for a tenant seeking good quality, 450-500 square metres of fitted-out space, the number of options are reasonably high across the CBD, and not necessarily in the CBD core, but the suitability or preference is low and or the fit out maybe tired to the point of changes being required and meaning it might be better to start from scratch.

To combat this, savvy owners in the market have undertaken the opportunity to spec fit out vacant suites in order to attract tenants who don’t have the time or skill to project manage a new fit out on top of the already replete list of tasks associated with a ‘pick up and move’.

Of course, all too much is made of the generalised incentives and tenants are pushing that extra mile to achieve a deal given the relatively high vacancy rates. But the owners who have fitted out these suites have far more activity on them, with a greater probability of securing a quality tenant.

Ultimately, a key point for 2013 as we head into 2014 is that the spec fitted-out suites are leasing in a faster time frame, with more competition on them, and generally leading to a better result for the owners and good solutions for the tenants.