Australia’s office leasing market poised to enter a new phase
26 September 2024Australia’s tenant “right-sizing” phase could be coming to an end as larger corporates prepare to readjust their workspace densities.
That’s one of the forecasts from CBRE’s What are Australian office tenants doing in 2024? report, which analyses the impact of hybrid working on tenant footprints.
The data is based on approximately 880 leasing decisions across Australia since the start of 2021.
CBRE’s Australian Head of Office Research Tom Broderick noted, “The trend has typically been that smaller tenants have expanded while larger tenants have contracted. However, the 2024 data suggests the frequency of contraction at the larger end is decreasing, which might be an indicator that the tenant “right-sizing” phase is coming to an end.”
Mr Broderick said tenant footprints had been densifying in Australia since 2014, with companies requiring less square metres of space per employee.
Originally this was due to the adoption of activity-based working/hot desking, but post-COVID this has been more related to lower office attendance due to working from home.
However, Mr Broderick said there was a limit to how dense a workplace could get.
“We believe that we are close to that limit and that tenants will have to start growing footprint with headcount once again. Signs of this are already evident, with our data showing that contractionary activity has been decreasing in frequency since early 2024,” Mr Broderick noted.
For tenants with spaces larger than 3,000sqm, the average contraction rate has reduced to 13% this year, a notable decrease from the 21% contraction rate observed in 2023.
In the 1,000sqm-3,000sqm size bracket, average footprint growth of 5% has been recorded, compared to -1% growth last year.
The CBRE report also analyses the change in face rent per square metre of all tenants that made a relocation decision in H1 2024 compared to 2023.
CBRE’s Pacific Head of Office Leasing Tim Courtnall said the data showed that the typical tenant was willing to pay a 9.6% higher rent in the first half of this year.
Of the decisions made this year, 70% involved an upgrade to a better building, 15% were to an equivalent building and the remaining 15% were a downgrade move.
“Clearly occupiers continue to have a bias to upgrading their premises to improve office attendance, attract top talent, improve ESG credentials and enhance their corporate image. An appealing workplace is also recognised as a key driver of collaboration, productivity and innovation,” Mr Courtnall said.
“Despite some indecision at the C-suite level on what growth looks like over the next three to five years, companies are unwavering in their pursuit of better quality office buildings across the country.”