Melbourne’s sublease office availability drops 21%

• National sublease office availability dropped 7.2% over the third quarter
• Melbourne's availability saw the largest percentage decline in the country
• Adelade's stock increased 85.7%, the largest increase of all the capitals

While national sublease office availability has reached a more than two-year low and is expected to keep falling, trends vary across each of the capital cities.

According to CBRE’s latest Sublease Barometer, Australia’s sublease office availability dropped 7.2% over the third quarter to reach  246,027sqm.

Sydney sublease stock steady

Sydney’s sublease office availability increased a mere 0.1% in the third quarter to reach 96,968sqm.

CBRE’s New South Wales Office Leasing Director,  Tim Courtnall sees the slight increase as a positive sign given what he describes as the current economic headwinds.

“While some additional sublease space has hit the market, this is mostly from larger occupiers who are contracting and working to achieve greater clarity on their occupancy requirements,” he said.

While availability was steady in Q3, Mr Courtnall said that he expects sublease availability to decline over the next two quarters as several larger sublease transactions are finalised.

“Challenging economic conditions could provide a further catalyst for a reduction in sublease stock, providing an attractive option for tenants facing higher fit-out costs and longer lead times when leasing new space.”

Melbourne stock down and declining

Melbourne’s sublease office availability dropped 21.3% to reach 109,146sqm, the largest percentage decline in the country. Despite the drop, Melbourne still accounts for 44% of the office sublease availability nationally.

CBRE’s Victorian Head of Office Leasing, Ashley Buller, explained that although new space entered the market over April and May this year, total deal volume was greater than new supply.

“A new trend we are seeing is that larger sublessors are speculatively reconfiguring their existing fit-outs, to compete with new fitted space at a discounted price point. Equally, we are now seeing larger tenants showing reluctance to commit to sublease space if they are unable to provide further term/longer term tenure.

“Overall, we anticipate sublease space will continue to reduce in Q4,” Ms Buller said.

Brisbane up, up and away

Going against the national trend, Brisbane saw a 42.1% jump in office sublease availability in the third quarter with stock increasing 7,428sqm to reach 25,080sqm.

CBRE Queensland Office Leasing Director, Chris Butters, said the sublease vacancy rate in the Brisbane CBD sits at 1.1% of the total base.

“The brokerage (1-200sqm) segment of the market remains buoyant as opportunistic tenants continue to focus on securing high quality fit outs in ‘A’ grade plus assets, with this thematic resulting in the vast majority of better quality sublease opportunities having been absorbed.”

Mr Butters does not expect sublease availability to keep rising in the fourth quarter.

“As business conditions remain stable it is unlikely we will see an influx of new sublease opportunities in 2022, however, rising interest rates/inflation could see this change in 2023 if as anticipated the broader economy slows and begins to contract.”

Perth market tight 

Perth has seen a decline of 19.9% in office sublease availability with stock levels reaching 5,734sqm at the end of the third quarter,  down from  7,158sqm in June 2022.

CBRE Western Australian Senior Director of Office Leasing, Andrew Denny said “Availability of sublease is the lowest ever recorded in the Perth CBD and reflects strong tenant demand and number of expanding tenants in the market.”

Mr says there are no signs of increased availability in the coming few months.

“Any quality fitted space, particularly space larger than 1,000sqm, is likely to be sought after.”

Adelaide

Adelaide’s office sublease market had the largest increase in the availability of all the capitals with an 85.7% jump in stock. Availability grew 4,200sqm to reach 9,100sqm.

Despite the boost, Adelaide’s office sublease market is still the second smallest in the country by square metre.

CBRE Adelaide National Director of Investor Leasing Andrew Bahr explained that Adelaide’s offices are returning to pre-pandemic status.

“With CBD workers back into the office at levels similar to pre-COVID, most lease deals are involving an overall expansion of space rather than contraction,” he said.

CBRE Sublease Barometer – Q3 2022