Office sublease market continues to contract

• Office sublease availability across Australia’s major cities continued to fall during the first half of 2021, according to CBRE
• Across the Sydney, Melbourne, Brisbane, Perth and Adelaide CBDs, the end-of-Q2 2021 figure is a 10.7 per cent reduction from the end of Q1 2021
• The market constricted the greatest in Sydney, where available supply decreased to 112,913 square metres, down 28.8 per cent from Q1 2021
• Melbourne was the only city to have an increase in availability from Q1 2021 to Q1 2022, rising by 10,969sqm to 182,668sqm

Office leasing availability in Australia’s main cities continued to decline in the first half of 2021, hitting 374,604sqm in June, the lowest level since November 2020.

The end-of-Q2 2021 numbers for Sydney, Melbourne, Brisbane, Perth, and Adelaide CBDs were down 10.7 per cent from the 419,580sqm recorded at the end of Q1 2021.

In January, the national number reached 428,600sqm, following increases of 31.1 per cent in Q4 2020 and 25.5 per cent in Q1 2021.

Before the recent COVID-19 breakouts, office occupiers were demonstrating rising confidence in the market, according to CBRE Research’s Q2 2021 Sublease Barometer.

CBRE head of office leasing Pacific Mark Curtin said the rapid rise in sublease space last year was concerning for the national market.

“However, we have clearly passed the peak of the cycle and the market should gradually trend down over the next few years,” he said.

“While the Melbourne sublease market has been more stubborn that others, given the extent of its lockdown periods, transactions currently in documentation will lead to a lower year-end number. Sublease activity in Adelaide, Brisbane and Perth is present, but is not a major feature of the market.”

Mr Curtin said the sublease market is not only a good barometer for the health of the property market but the economy more broadly.

“To see Sydney’s sublease space drop so sharply over the first half of 2021 is very encouraging,” he said.

The market constricted the greatest in Sydney, where available supply decreased to 112,913 square metres, down 28.8 per cent from Q1 2021 — the lowest recorded level since June 2020.

Melbourne was the only city to have an increase in availability from Q1 2021 to Q1 2022, rising by 10,969sqm.

While it decreased slightly near the end of the quarter, it is still more than double the 89,167sqm recorded in June 2020, before the city went into a state of lockdown.

CBRE head of office occupier research Joyce Tiong said falling sublease availability across most markets offset Melbourne’s small rise in sublease space, resulting in a second consecutive quarter of contraction overall.

“Before the latest lockdown, Sydney had been the bright spot, a 55,000sqm reduction since the start of the year to close the gap to its June 2020 figure,” he said.

“Sublease space is likely to remain significant, particularly in larger markets such as Sydney and Melbourne; however, flight to quality and occupiers having better clarity on their space requirement is expected to support further sublease contraction over the near term.”