The increase in small to medium-sized businesses in capital cities has seen a rise in demand for landlords to split floors and accommodate these tenancies.
This has resulted in an increase in the number of spaces for lease in the Sydney CBD sub-150-square-metres market. While vacancy rates are at their lowest levels since 2007, smaller businesses looking to lease office space within the CBD have more options available to them today than 12 months ago.
The available space has shrunk as buildings that once accommodated small businesses have, in general, been sold and converted to residential towers or boutique hotels.
According to agents at JLL, B Grade options make up about 60 per cent of current stock available to tenants in the sub 150 sq m market, and when compared to October 2016 there has been a 19 per cent increase in options available for tenants to consider.
On the back of an increasingly strong commercial property market in Sydney, rents have continued to trend upward. According to JLL Research, average secondary net effective rents have increased by 88.4 per cent between the first quarter of 2015 and the third quarter of 2017, for full-floor deals.
Many tenants who are looking at their options of both renewing in their current premises or relocating to new offices are experiencing an increase in rent from their current passing rental, with many of them re-entering the market after three to five years - the last time they negotiated a lease.
JLL's leasing executive Steane Davies said he has seen a number of strategies that are working well to attract tenants within the sub-150 sq m market.
"Landlords and their leasing agents are developing targeted strategies to attract smaller sized tenants by splitting floors in an effort to reduce their vacancy and shorten letting periods. We have seen the majority of demand in the smaller end of the market in 2017, and consequently, owners are looking to be able to accommodate for businesses of this size."
One of the latest deals was by BFJ Pty Limited which leased a 106 sq m office suite plus storage at Unit 100/Level 4, 515 Kent Street, Sydney from Macinger. The lease term is two years. It was leased by John Skufris of Ray White Commercial South Sydney.
Mr Skufris also leased negotiated a lease for Jewellery Cad/Cam Pty Ltd for a 144.50 sq m office space at Suite 601/Level 6, 83 York Street, Sydney from WTL Enterprises. The lease term is two years.
Mr Davies said tenants in this size cohort require flexibility with their lease term as there is uncertainty regarding long-term headcount growth.
"We're seeing that smaller suites often allow for flexible lease terms from 12 months, and given the size of the businesses and potential for them to grow, tenants are finding comfort with landlords who are willing to consider shorter term leases," Mr Davies said.
David Cannington, head of research and strategy at Investa, said 2017 has seen leasing market momentum synchronise across Australia's big four CBD office markets for the first time since the mining investment downturn of 2012.
"Largely reflecting benign supply of new office space, vacancy rates are trending lower in Sydney, Melbourne, Brisbane and Perth," Mr Cannington said.
