Sydney CBD Q41115.02.2012
How would you characterise your market at the moment?
We continue to see evidence of a two tiered market. Those occupiers with less direct impact from Europe and the US continue to view real estate from a longer term prospective and make decisions based on what is best for the business beyond the immediate. This is seeing a greater proportion of relocations in order to drive efficiency and/or provide a better working environment to attract and retain staff. On the other side, the global firms are taking a more blanket view regarding their total footprint. Despite the health of their Australian business, budgets to expand or relocate are being frozen as a function of issues faced in other markets.
Are there any trends you are noticing among the tenants you are talking to?
Across the board costs are being scrutinised and decisions are being delayed as long as possible in order to gain greater visibility over external issues. That said companies are pushing forward with plans where strong fundamentals exist to ensure that real estate does not constrain the growth or performance of the business.
There continues to be greater activity and increased deal volume from smaller tenants seeking good quality Grade A/Premium quality accommodation.
What do you think will be the biggest influence on your market in Q1?
Events in Europe will undoubtedly influence activity across the market in Q1 and those occupiers who can afford to wait will. That said a relative lack of larger contiguous space and the limited levels of new supply will continue to put pressure on larger tenants to make decisions. While we are not seeking a notable increase in sublease stock, there is the potential for this to occur as a result of redundancies in the financial sector.
What will rents and incentives do in Q1?
The fundamentals are in place for further rental growth in 2012. There is essentially no new prime grade supply coming onto the market in 2012. Given only 8,500 sqm of refurbished supply is set to come to the market this year, even moderate growth in demand will outstrip supply and see vacancy tighten. This will be supportive of further rental growth during 2012, albeit at a slower pace than 2011.
What should landlords do to adapt to these market conditions?
It continues to be a deal by deal market and exploring all alternatives to reach a successful conclusion is important. Those Landlords with the ability to be flexible and open to creative deal structures are likely to be more successful in securing new tenants.
Head of Leasing, New South Wales
Recent Leasing Deals
Download a PDF of the Sydney CBD Q411 Market Overview