From clicks to bricks and mortar
Internet shopping heavyweight Amazon has joined the move by online businesses to lease office space in capital city centres at a time when landlords are having to deal with rising vacancies from more traditional CBD tenants in the financial and legal sectors.
In one of the larger deals, Amazon has taken up three floors at 55 Hunter Street to accommodate part of its Cloud business, which it registered in Australia more than two years ago.
The new office space for Amazon comes as it sends executives to Australia to scout out appropriate sites for an Australian-based warehouse and distribution centre.
Social media is also a growth sector, with Facebook leasing the top floor of 77 King Street and Linkedin taking a lease at 130 Pitt Street in the past few months. Other companies, including Groupon and Spotify, are also leasing sites.
Google is still the most active, sub-leasing of space at 1 Darling Island Road, Pyrmont, opposite its headquarters at GPT's Workplace 6 Pyrmont site.
There is also ongoing speculation the group is looking at leasing more space at the Frasers Central Park development, and possibly at the under-construction Barangaroo South project and the upcoming new Convention Centre at Darling Harbour.
According to agents, office landlords are happy to negotiate flexible lease contracts, but as the businesses grow, they are willing to take up the lease with minimal inbuilt incentives for a flat rental structure.
The managing director of Karbon Properties, James McCourt, has completed several deals in and around the Sydney CBD and says demand from the internet companies has risen in the past year. He said the rents are strong at between $500 to $600 per square metre.
His latest deals include Wotif, which leased 1300 sq m at 173-185 Sussex Street, building maintenance service group hipages leased 1200 sq m at level two of AMP Capital's 338 Pitt Street, while the news group Guardian Australia took out 500 sq m at 35 Reservoir Street, Surry Hills.
"We have another 2000 sq m under offer from online and digital groups - the strength of this sector is unparalleled. This growth is significant and can't be matched by any industry in Australia," he said.
Some online groups will sign leases for only two to three years. This is not ideal but for now this is picking up the slack in a lacklustre market. However, incentives are often non-existent. This also creates opportunity to reset rents at the option and potentially capitalise on the upside in rent.
Cameron Williams, national director of office leasing at Colliers International, said it was encouraging to see tech companies making the CBD their location of choice. "A decade ago many of these creative-style businesses would remain in the fringe districts, but are now heading into the core of the CBD," Mr Williams said.