Telstra's retreat from office space is already under way
Nick Lenaghan and Matthew Cranston
Telstra’s decision to axe 8,000 jobs, split its infrastructure holdings and launch a $2 billion asset sale immediately caught the attention of the property sector, which is heavily exposed to the telco giant’s extensive footprint.
The loss of that many positions would ordinarily translate into a retreat from around 100,000 square metres of office space.
But it turns out the potential damage may be less than anticipated, with Telstra already quietly making moves over the past 12 months or more to mitigate the impact of a reduced office space requirement.
Given where Sydney’s office lease pricing is at now – prime net face rents have tipped past $1,000 – that’s as much as $100 million in rent taken off the table of landlords in one year.
Some of Australia’s biggest property owners – Investa, Dexus, and Charter Hall – play landlord to the national telco along the eastern seaboard and would potentially be the first hit by vacancy.
Already this month, Telstra is expected to complete its vacating of 32,000 square metres of space at 35 Collins Street, an AMP Capital-controlled building. Much of that is being re-leased to the state government.
In the meantime, Telstra has been steadily converting its headquarters at 242 Exhibition Street in Melbourne into agile-style working place, allowing it be more efficient and occupy a smaller footprint.
“They haven’t leased anything additional,” noted one industry insider.
“But what they’ve done is they’ve been able to refit and restack their headquarters in Exhibition Street.”
Elsewhere in the Melbourne, Telstra has around 6,000 square metres of space at 180-222 Lonsdale Street at the QV complex which is owned by Dexus in conjunction with the Grollo family.
That space may also be ultimately given up by the telco.
In Sydney it is similar story. Telstra has been progressively vacating 320 Pitt Street, which Singapore’s ARA Asset Management bought for $275 million from a partnership including Propertylink last year.
Telstra has been sub-leasing the space it doesn’t want there. Its footprint in that building covers around 20,000 square metres and it expires in 2020.
Elsewhere, Charter Hall owns 231 Elizabeth Street – buying it last year from Bright Ruby for $340 million – which Telstra occupies with around two years to run on the lease.
Telstra’s main Sydney abode is at Investa’s 400 George Street. It has 30,165 square metres there and the lease expires in January 2025.
“Fundamentally, they’ve been looking at reducing their occupied space through delivering agile workplaces over the past 12 months. They’ve been doing the same in Sydney as well,” an observer noted.
“The consequences around what they lease in the market is not of as much significance … because they have already prepared for it.”
Meanwhile, as Telstra shrinks, the nation’s wholesale operator National Broadband Network is expanding. In the past year, NBN has taken two major occupancies in Sydney and Melbourne, totalling around 40,000 square metres.
