Real estate firm JLL is reporting a 30 per cent uptick in tenant demand for ready-to-occupy Sydney office space since the start of the COVID-19 pandemic, with larger companies the driving force behind the trend.
The company has noted 80 per cent of tenancy briefs brought to market since the beginning of the COVID-19 crisis have been requesting fitted-out spaces – a 30 per cent increase on pre-pandemic levels, according to office leasing executive Steane Davies.
Demand was also coming from a broader range of tenants than was the case prior to the coronavirus crisis.
“Typically, demand for premises with fit-outs in place have been prevalent in tenancy groups seeking space below 500 square metres. We are now witnessing demand across larger tenancy groups that are seeking more than 1000 square metres of space,” Mr Davies said.
With “not many deals happening in the market” during the COVID-19 pandemic and vacancy rates in the CBD rising, Mr Davies has been advising landlord clients with vacant offices to invest in a speculative fit-out – a generic fit-out installed without a pre-commitment from a tenant – in order to attract tenants.
“Our straight-up honest recommendation [to landlords] is to do a fit-out,” Mr Davies said.
Mr Davies’ tenant clients were reporting that a fitted-out office was attractive not only from a cash-flow perspective but also due to the reduced move time between buildings.
“Along with the ease of moving [into an already fitted-out space], tenants and businesses right now are not going to spend that money upfront,” he said.
He estimated that the cost of a “spec” fit-out varied from about $1000 to $1200 a square metre.
Given the trend toward fit-outs, Mr Davies said an investment in a fit-out now could pay dividends beyond the current leasing cycle.
“[It’s] the second life of existing fit-outs … Fit-outs that were built around five years ago are probably even more valuable now,” he said.
“In the short to medium term, we expect to see more fitted offices offered to the market, which will make it easier for tenants to consider relocating. Newly fitted space allows the opportunity for tenants to visualise what they are getting, which often helps provide the tenant with increased confidence in making their relocation decision.”
He pointed to a five-year leasing deal, which commenced July, that JLL negotiated on behalf of investment management firm Neuberger Berman for a 142-square-metre space at 9 Castlereagh Street, in Sydney, from landlord Charter Hall, as an example of a landlord-funded fit-out proving a deciding factor in negotiations.