Subleasing Takes Time
At the onset of the pandemic predictions of massive office subleasing swirled throughout the office markets as many occupiers quickly contemplated putting a lot of sublease space on the market. Some did.
In the back half of 2020, expert forecasts during the Corenet Global State of the Office Market panels averaged 2.5-3.00% for Sydney and Melbourne and 0.5% for the other capital cities. The difference was simply because Sydney and Melbourne have the vast majority of HQ (large) tenants. These are the companies with the highest number of employees who could work from anywhere.
By mid-2021, many occupiers were having second thoughts and slowly took space back or did not release excess space as many thought office work would return to normal. The original estimates remained the same, but the actuals were roughly half. A year later the 2020 forecasts and 2021 actuals remained the same.
In the second half of 2022 things changed. Working from anywhere was no longer abnormal and companies had determined how much space they would put on the market.
Recently, CBRE reported sublease vacancy figures of Sydney 2.4%, Melbourne 2.2%, Perth 0.4%, Adelaide 0.4%, and Brisbane 0.3%. Market experts agree with these figures and some still believe it is higher. The earlier 2020 estimates have finally arrived – 3 years later.
In May this year, we searched the Sydney CBD for a client. The amount of space submitted was huge but not unexpected. The more intriguing thing was the amount of sublease space that was submitted after the initial exercise. In the months of July and August, every 2.5 weeks we were notified of another sublease vacancy that could suit a tenant of 2,500-3,000 m2 (or more). In Melbourne, it is no different. Telstra is subleasing 30,000 m2.
This post-corporate reporting season drop has subsided, but we are now seeing the rightsizing of the market which so many thought may happen in 2020, 2021, 2022, etc. Sublease space will either continue to be placed on the market or, the occupiers will wait until the end of their lease to hand back excess space. So now it all depends on lease tails.
This means the rightsizing of the market has at least 2-3 years to play out and that is why subleasing takes time.