Quality options feed green shoots in office market revival

SYDNEY, 10 October 2023 – Sydney’s office market is starting to see an increase in activity with a number of tenants taking the opportunity to upgrade to higher quality spaces as a new post-COVID-19 market emerges, according to a new report from JLL.

The Tenant Perspectives: National, local and sector office market insights report found a significant driver behind the latest flight to quality was a desire for better human experiences with both tenants and landlords increasingly looking to improve workplaces overall to underpin a meaningful and sustainable return to work.

Zoe Willis, Tenant Representation Consultant – Sydney, said corporate tenants were increasingly prioritising sustainability in their workplace decisions with building sustainability ratings and plans for electrification key factors in lease considerations.

“Assets with a clear path to Net Zero are in high demand, while those with poor ESG [environmental, social and governance] credentials are less desirable,” Ms Willis said. “This supports the trend of tenants seeking quality assets, as landlords of prime-grade properties are willing to upgrade sustainability credentials and future-proof their assets.”

She added that many corporates were now also cognisant of the need to involve key stakeholders and advisers when reviewing office workplace strategies.

“Sound advice and engagement are critical to maximising cost-efficient and flexible workplace policies including benefits associated with fitted and speculative fit-outs to minimise capital expenditure, improving NLA efficiencies, and aligning with co-working providers to further reduce space needs and facilitate flexible project growth/contraction,” Ms Willis said.

She said the most popular CBD office market remained the City Core market with growth in the public administration and safety services and professional, scientific and technical service industries making them the most active in the leasing market.

The report found prime net face rents in the CBD were now around $1363 a square metre, up 8 per cent year on year, with metro rents at $686 a square metre, while secondary net face CBD rents were at $971 a square metre (up 4.9 per cent, year on year) and $533 in the metro market.

Mr Kilbane said a number of metro market tenants, including pharmaceutical firms, were opting to move to core areas seeking higher-quality spaces with sustainability a top priority, while enhancing workplace design and flexibility, right-sizing to suit new ways of working, and meeting and achieving cost efficiencies were also on the agenda.

“New premium towers in North Sydney, for example, are attracting tenants previously based in suburban locations such as Chatswood and Macquarie Park. Factors such as enhanced amenities, excellent public transport access and appealing precincts play a significant role in their decision-making.

“Increasingly, tenants are taking advantage of the time and available options which have together created optimal marketplace leverage.

“We have been successful in working with clients to relocate to both a better building and fit-out, and to a more core location while remaining cost-neutral compared to the current rental costs of the stay-put option,” Mr Kilbane said.