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Small space, big business

Sales and leasing activity at the small to medium end of the office scale appears to be defying the general trend of weakening occupancies in the capital cities.

Sales and leasing activity at the small to medium end of the office scale appears to be defying the general trend of weakening occupancies in the capital cities.

Subleasing of space, whereby incumbent tenants lease excess floors to a small tenant, is also gaining popularity, which has led to a decrease in the vacancy rates in that sector. This has forced landlords to be more flexible in lease contracts by offering shorter-term deals and smaller spaces with fixtures and fittings.

As a result, buildings suited to accommodating small suites and large anchor tenants are being bought at competitive prices.

The most recent sale was at 121 Harrington Street, Sydney, known as the Bushells Building.

A private investor paid $43.5 million, on an initial yield of 9.25 per cent and at a rental rate of $6892 a square metre to the vendor, the Charter Hall Investment Fund No.4.

The sales agent, Jones Lang LaSalle's director sales and investments, James Aroney, said the 6314-square-metre property had a long lease to Dimension Data. Mr Aroney said he received interest from a wide buyers range, including several offshore funds with local representation, private investors and syndicates.

Other agents said that over time, when the present leases expired, this style of asset could be offered for sublease.

The director of Ray White Commercial, John Skufris, said that in the quarter to June 30 he signed up to 15 leases of less than 150 square metres. Tenants included consultants, accountants, lawyers and recruitment agencies.

Mr Skufris said the demand came from tenants who moved within close walking distance from their previous location, or within the same buildings.

"We also found space from share tenants and serviced office tenants who decided they wanted their own rental premises," Mr Skufris said.

"There is also a trend to leasing offices with existing fitouts or partial fitouts that offer lease terms from six months to three years."

The latest CBRE Sublease Barometer shows smaller spaces in the Sydney city centre have recorded their first decrease in three months, after a previous upward trend in vacancy rates.

The Sublease Barometer tracks both the volume of sublease space and the trends occurring within different industry groups and market sectors in the Sydney city centre.

CBRE's senior director, office services, Jenine Cranston, said sublease availability declined in June to 72,079 square metres, a decrease of 2885 square metres from the previous month.

"The average total sublease space since the start of 2013 is 73,361, with May 2013 recording the highest sublease volume since November 2009," Ms Cranston said.

"The decline is a step in the right direction for vacancy rates."

Ms Cranston said the majority of sublease space available in June was in tenancies with incumbent occupiers in the finance and insurance sectors. These sectors at present account for about half of both the number of opportunities and floor space available.

According to the barometer, the proportion of A-grade sublease space decreased substantially, from 51 per cent to 36 per cent in terms of square metres. Most of the space is partitioned and available for immediate occupation.

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