Office landlords and tenants at loggerheads over higher rents and incentives

In the firm’s latest report it says the uplift in rents in Sydney during the quarter was driven by new, higher quality buildings coming online, resulting in a larger share of premium grade buildings in the prime basket.

This helped take the rolling annual increase in effective rents to 6.9 per cent including a 7.7 per cent rise in face rents. Major leasing deals during the quarter included law firm, Ashurst, securing more than 10,000 square metres at Investa’s 39 Martin Place.

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“While demand for office space in Australia’s largest office market remains stable, the time between inquiry and decision is being extended. Tenants are more discerning given the uncertain economic conditions, and incentives remain higher as a result,” Brown said.

“Anecdotally, Cushman & Wakefield’s office leasing team reports that tenants are seeking high-quality fit outs in core locations as hiring and staff retention remain in focus in a historically tight labour market.”

In its office market report, Savills’ national director, capital markets – research Chris Naughtin said there is evidence net absorption in the midtown, southern, western precincts of Sydney’s CBD have declined in contrast to rising core take-up.

“This bucks the trend of the last three decades, which saw strong take-up in these precincts due to the relative affordability of leasing space in these areas and development of underutilised space,” Naughtin said.

In Melbourne, the decline in tenant demand on the back of uncertainty created by the pandemic originally, and now with businesses trying to attract workers back into their buildings under flexible arrangements, including hybrid workplaces, incentives for tenants quickly escalate.

“Incentives have stabilised, reflective of a market that has seen a welcomed increase in the number of enquiries on the previous year. There does, however, remain a variety of tenant options available across quality office accommodation,” Brown said.

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