As landlords continue to have a hard time securing deals, developers in Sydney's fringe markets are "getting creative" to entice more prospective tenants.
In late May 2020, developer Theo Onisforou announced his "deal of the century" offer on his commercial pre-development: a 50 percent net rent discount for the first five years.
The development site is situated at 290 Botany Road in Alexandria, the Sydney Morning Herald reported. Designed by Chenchow Little, the 9,860-square-foot, 7-story commercial building features a fitness center and cafe. It is due to be completed in 2022.
The development also features updates that push its post-pandemic health safety standards a notch higher with touch-free toilet doors and voice-activated lifts, the Commercial Real Estate report said. According to its listing agent, the campaign is already starting to gain traction since it was first announced.
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Meanwhile, the Alexandria campaign inspired another campaign in Rozelle, Colliers International agent James Cowan said. Cowan's client is offering a rent-free office lease for the rest of 2020. The rent-free deal involves 413 square meters of office area with more than 40 workstations, private offices, and a board room, and 1,860 square meters of warehouse/parking space at 128 Terry Street.
Industry experts expect the fringe office leasing market in Sydney to likely emerge from the pandemic unscathed, a Commercial Real Estate report said, as companies rethink their strategies and take advantage of cheaper rents outside the CBD.
Office rents in Sydney's immediate fringe suburbs, including Pyrmont and Surry Hills, had surged in the last two to three years. Those areas offer lots of amenities and compete with the CBD at $1,000 to $1,300 net, according to CBRE director of office leasing - Australia, Brendan Shipp.
In these fringe areas, vacancy in A-grade office accommodation was very low at 2.6 percent or 5,780 square meters of the 221,812 square meters total of A-grade stock, Colliers International estimates.
Knight Frank - Sydney South's director, head of office leasing Nick Lau believes that not much will change with the pandemic. He said that these fringe areas have a high footprint of technology, creative, education industries. They have progressive work environments and are familiar with remote working, he added.
In the first quarter of 2020, the inventory of office space for sublease in Sydney CBD has recorded its highest level since the recession in the early 1990s, the Financial Review said, citing the CBRE report. The total sublease space in Sydney CBD rose from 73,431 square meters to 82,739 square meters from Q4 of 2019. While the primary cause of tenant relocation Q1 2020 is not yet COVID-related, experts say that the situation could worsen as businesses look for ways to save money to tide them over during these trying times.
If businesses cannot quickly rebound, an increase in sublease space coupled with a rise in direct lease space could result in CBD vacancy rates rising to about six percent in mid-year and further rising to about eight percent by the end of 2020, the CBRE report noted.
