Major landlord Investa Commercial Office Property Fund has inked one of the significant deals of the year to retain insurance giant Aon in Sydney after leasing markets were hard hit by the pandemic and lockdowns.
The development comes as capital city leasing markets are emerging with some optimism, albeit with vacancy rates staying well in double digits. Some withdrawal of space has seen Sydney’s level drop by 0.2 percentage points to 13 per cent, while new supply in Melbourne pushed its rate to 15 per cent in the latest JLL office market data.
Aon has signed for a five-year term over 7236 square metres starting in late 2022. The deal will include keeping the well-known signage at what is known as the Maritime Trade Towers complex.
Aon has been a long-standing tenant of 201 Kent Street, first signing as F B Hall following the completion of the building in 1988. The landmark A-grade building includes the historic Grafton Bond Building and sits along the western corridor of the city.
The deal is seen as one of the most significant for the Sydney market this year as it began and ended in the shadow of COVID-19.
Michael Cook, group executive property, said retaining Aon was a major objective for the firm during the pandemic.
“We’ve invested enormous time and energy to ensure the building’s services and amenities have stayed relevant for the changing needs of the tenant in the current environment,” Mr Cook said. “Aon’s most recent renewal for another five-year term is a great endorsement of this investment.”
The deal was completed by Investa’s Liam Stewart and Colliers Frank Sassine and Dean Bracken.
JLL head of research Andrew Ballantyne said the third-quarter statistics on national office markets revealed positive net absorption — a measure of leasing — of 70,100 square metres, which was the strongest quarterly result since fourth quarter of 2018.
“Business confidence held up during the most recent lockdown, while labour market surveys showed the majority of organisations were seeking to increase headcount,” Mr Ballantyne said.
“The silver lining of the latest lockdown in NSW, Victoria and the Australian Capital Territory is an acceleration of the vaccination rollout across Australia. We will have one of the highest vaccinations in the world at the end of 2021 and organisations are more confident in making long-term office-leasing decisions.”
Key drivers of Sydney’s net absorption included Macquarie Bank removing 4000 square metres of sub-lease space from 1 Shelley Street and IOOF withdrawing 3900 square metres from 347 Kent Street. The Commons also took up 4000 square metres at 388 George Street.
Macquarie Securities analysts said, based on the JLL figures, they maintain their belief that a base is forming in office markets – particularly with the impending reopening – “albeit our supply forecast suggests no material improvement in vacancy for several years”.
For Melbourne, JLL head of office leasing Tim O’Connor said despite the positive net absorption result in the third quarter, leasing market sentiment remains challenging in the CBD.
“However, the lifting of restrictions on leasing inspections has started to improve activity, and we expect enquiry levels will increase over the latter part of 2021 and into 2022,” Mr O’Connor said.