Asian firms upgrade to prime CBD sites

A new round of tenants from China and other Asian cities are moving into Sydney's central business district, helping to alleviate some of the leasing pressure on landlords, according to Jones Lang LaSalle.

Although the Sydney office leasing market remains under pressure for floor plates of more than 1000 square metres, the new tenants are creating supply issue at the smaller end with their increasing space demands.

Owner-occupiers in the strata market are also looking, which has compounded the squeeze for space.

Asian-based investors are also buying assets, but these properties usually have long leases with larger corporations.

The director of leasing at Jones Lang LaSalle, Ben Kardachi, said the expansion moves had been driven by Chinese occupiers.

He said the trigger was the desire of these groups to expand their international network.

"Chinese businesses are upgrading to long-term leases in prime-grade buildings in the Sydney CBD office market as their businesses mature and expand here," Mr Kardachi said.

"The trend of moving to quality Grade A and Premium Grade buildings is very consistent with what we have seen by Chinese organisations in Beijing and Shanghai." He said recent deals included the Agricultural Bank of China, which expanded its Sydney presence through its relocation to 2 Chifley Square from MLC Centre, 19 Martin Place.

Other recent and upcoming moves by Chinese corporates into the Sydney CBD office market include Greenland Group at 233 Castlereagh Street; Sinopec and Wealth Resources at 126 Phillip Street.

"Greenland chose the property given its proximity to the large-scale residential development they are undertaking in the Sydney CBD - the old Sydney Water site," Mr Kardachi said.

State Grid Corporation also moved via a short-term sublease on 126 Phillip Street.

The senior executive of leasing at Jones Lang LaSalle, Christopher Selman, said leasing activity from mainland China would only increase in the Sydney CBD office market, with several inquiries already received.

Dr Dominic Brown, head of South East Asia and Australia/New Zealand research for DTZ, a UGL Company, said about 71,500sqm of new space was due on the Sydney leasing market next year, to be delivered across five separate projects.

"The largest source of new supply is from 5 Martin Place, which is currently undergoing significant construction work to increase overall floorspace to 33,000sqm," Dr Brown said. "Given the comparatively low level of gross new supply expected over the year, it is likely that net supply in 2014 will fall below the 10-year average of 36,000sqm."