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Coworking operators dominate Sydney’s sub-300 sqm office market

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The footprint of coworking office space continues its rapid ascension across Australia’s east coast, today accounting for over 470,000 sqm across Sydney, Melbourne and Brisbane office markets. However, according to Cushman & Wakefield research, coworking space remains a relatively small part of the office landscape occupying 2.8% of the east coast CBD office market.

Based on Cushman & Wakefield analysis, by 2020 coworking space is expected to equate to 141,887 sqm in the Sydney CBD or 2.8% of the overall office market, 122,462 sqm in the Melbourne CBD or 2.7%, and 60,900 sqm in the Brisbane CBD also 2.7% of the broader office market.

The growth in coworking has been very strong in the Sydney CBD, jumping from 40,000 sqm in 2015 to 130,000 sqm in 2019 at an average annual growth rate of over 30%. Coworking groups occupying 70 tenancies in the Sydney CBD, 18 in Sydney’s fringe market and 43 in metro areas.

While coworking is still emerging across the office sector, Cushman & Wakefield analysis shows that coworking operators are dominating the sub-300 sqm market in Sydney. The sub-300 market in Sydney overall accounts for 10% of office leasing volume and 50% of all leases with a concentration of sub-300 sqm tenants in certain industries, led by finance and insurance (25%), professional services (22%) and information media and technology (16%).

While coworking operators are expanding their tenant base to larger enterprise clients, the majority of tenants occupy the smaller sub-300 sqm tenancies. With coworking space occupying 140,000 sqm and overall sub-300 sqm space at 500,000 sqm this suggests that coworking operators have between 25-30% of Sydney’s small tenant market.

With coworking space expanding at 25,000 per annum and approximately 40,000 sqm of new sub 300 sqm leases each year, new coworking space could soak up over 60% of annual sub-300 sqm tenancies. At this rate, coworking space in this size range is not expected to reach a saturation point for at least 10 years.

Cushman & Wakefield’s Head of Research, Australia and New Zealand, John Sears, said: “The rise of coworking spaces in CBD office markets continues to grow at a rapid clip, but remains a relatively small part of the overall office landscape today.”

“We are also seeing coworking operators absorb a large proportion of new supply and are dominating in the smaller office arena, and this has the potential to put increasing pressure on landlords that rely on smaller office tenancies particularly given forecast growth rates.”

Cushman & Wakefield’s Head of Office Leasing NSW, Tim Courtnall, said: “smaller tenants are increasingly drawn to the high-quality fit outs and range of services offered by the co-working groups. As a result, owners will have to adopt new strategies to attract and retain tenants in this increasingly competitive sector.”

“We are currently seeing a number of co-working, serviced office operators very active in Sydney, Melbourne and Brisbane. In Sydney alone, groups like Regus, WeWork, Hub, JustCo, Compass and Victory are all very active in securing sites for 2020 - 2021 where we expect vacancy to remain as low as 4%.”

“In 2019, we are starting to feel the impact of the coworking phenomenon, our brokerage team have found demand slowing for suites of sub 300sqm, in particular in the Prime Grade sector. These tenants are attracted to the turn-key solutions, flexible terms including no bank guarantee and ability to do short term leases on offer by these operators.

“We expect to see further consolidation in this sector over the coming years and our clients are closely watching the evolution of this sector in markets like London and the US, where groups like WeWork leasing and buying whole buildings.”