Squeeze on subleasing space

The number of new leases signed in Sydney and Melbourne in the past few months, including by Telstra and Thiess, has led to a crunch in the availability of office sublease space around the country.

Last week, Commonwealth Property Office Fund confirmed it had agreed contracts over 12,200 square metres, which included 2900 sqm of expansion to Telstra at 222 Lonsdale Street and an expansion to the Commonwealth Bank at 385 Bourke Street, both in Melbourne.

In Sydney, the engineering firm Thiess has opted to move out of 26 College Street to take up about 2500 sqm at 52 Martin Place, while insurance group TAL has shifted from Milsons Point to take up 10,000 sqm at 363 George Street.

The only other larger leases available next year, are the former Freehills lawyers offices at MLC Centre, which co-owner GPT's head of investment, Carmel Hourigan, said was undergoing refurbishment, and about 15,000 sqm of the Citi space, where several potential tenants are already in discussion.

Ms Hourigan said there was potential space in Melbourne Central and the Governor Macquarie Tower in Sydney.

According to new forecasts from CBRE, the new lease deals have led to the prediction that nationally, sublet space is likely to have peaked, with no significant increases in stock expected in the short term.

The latest Sublease Barometer from CBRE show the amount of sublease space is hovering between 70,000 sqm and 80,000 sqm in Sydney, Melbourne, Brisbane and Perth.

CBRE's regional director of office services, Andrew Tracey said while 80,000 sqm was above historic averages, the expectation was no big tranches of new sublease space would be offered in the near future.

"Much of the available stock is subject to very short lease tails with expiries in 2014 and 2015," Mr Tracey said. "This is more of a deferred direct hidden vacancy issue given the inherent difficulty in leasing space with less than a three-year lease expiry. Much of this stock is expected to revert back to direct vacancy, which will significantly reduce the volume of available sublease space."

The Sublease Barometer tracks volume of sublease space and trends within different industry groups and market sectors in the major capital cities.

In Sydney, the volume of sublease space rose by 2033 sqm to 80,196 sqm during September. However, only four new options came to the market, compared with the 11 added in August.

"The finance and insurance sector increased its dominance in the sublease arena during September, to account for some 55 per cent of the available space," Mr Tracey said. "Public sector contraction is also playing a role in the market."

For Melbourne, the moves by ANZ and NAB have reduced the stock of sublease space in the CBD, by 5985 sqm during the month to 74,860 sqm.

Mr Tracey said that was significantly reduced from the year's peak above 100,000 sqm.

"A flight to quality has also emerged as one of the other key influencers, as businesses capitalise on opportunities to take advantage of high incentive levels to move to better quality space," he said.