Home Property Australia Smaller occupiers lead leasing expansion

Smaller occupiers lead leasing expansion

  • November 01, 2022
  • by Property Australia

According to recent CBRE research, a noticeable divide has formed in the way small and major corporate occupiers are tackling their post-pandemic workplace requirements.

CBRE data emphasises tenant size as a primary predictor of whether occupiers will expand or decrease when making a lease choice in a new Office Footprints study, with smaller tenants extending their footprints and bigger corporates often doing the reverse.

CBRE Head of Office Research Tom Broderick said an analysis of national office leasing deals from Q1 2021 to Q2 2022 showed that sub-1,000sqm tenants grew their footprint by an average of 20.4 per cent, while 1,000sqm to 3,000sqm tenants expanded by an average of 11.0 per cent. On the flipside, larger tenants of over 3,000sqm contracted by an average of 12.6 per cent.

“Smaller businesses have typically grown their headcount over the past few years and are also wanting more collaboration space and smaller meeting rooms within their offices,” Mr Broderick said.

“In contrast, larger corporates have typically been slower to return to the office and are seeing opportunities to cut costs by reducing their footprint as they increase desk sharing ratios.”

The number of workers going into the office lifted in most CBDs in September according to the latest Property Council of Australia’s latest Office Occupancy Survey.

Brisbane enjoyed the largest rise, with occupancy jumping from 57 to 70 per cent, while Adelaide saw occupancy increase from 71 to 78 per cent and occupancy in Perth lifted from 69 to 76 per cent.

Occupancy rose in Melbourne from 39 to 41 per cent while occupancy rates in Sydney remained steady at 52 per cent. In Canberra occupancy dropped from 64 to 54 per cent.

Meanwhile, according to the Property Council of Australia’s latest Office Market Report, tenant demand lifted an average 0.5 per cent across the country’s CBDs.

Despite this, new office buildings coming onto the market pushed aggregate vacancy rates up in capital city and non-capital CBDs.

The July edition of Office Market Report, which is released twice a year, showed overall CBD vacancy increased from 11.3 to 12 per cent, while non-CBD areas saw a rise from 13.9 to 15.2 per cent. Brisbane and Adelaide both recorded vacancy decreases, from 15.4 to 14 per cent and 14.5 to 14.2 per cent respectively, the only two CBDs in which supply didn’t outstrip demand.

The vacancy rate rose in the other capital cities, from 6.3 per cent to 8.6 per cent in Canberra, 9.3 per cent to 10.1 per cent in Sydney, 11.9 per cent to 12.9 per cent in Melbourne and 15 per cent to 15.8 per cent in Perth.

“The overwhelming response from larger organisations is that they want to improve occupancy levels in their offices to drive collaboration, build culture and ensure that younger team members are receiving the mentoring they need to advance in their roles,” Darren Nugent, Regional Director of CBRE’s Pacific Office Occupier business, noted.

“However, set against this is the fear of losing staff who prefer to work remotely, and many occupiers remain unsure about their future office requirements.”

While CBRE’s report highlights a clear focus by larger occupiers on increasing office occupancy levels, there is continued uncertainty about floor space needs. Regardless of size differences, CBRE’s report shows that overall leasing activity is on the rise across Australia, with double the amount of leasing decisions in H1 2022 compared to the same period in 2021 (factoring in both renewals and relocations).

Furthermore, 68 per cent of lease decisions in H1 featured tenants retaining or expanding their presence.