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Office market incentives remain elevated with spec fit-outs high on the list

Jess Freeman • 03/08/2023


Tim Molchanoff, Cushman & Wakefield’s Head of Office Leasing, Australia and New Zealand said nationally, quality, and the flight to, continues to be key across our CBD and Metro leasing markets. Also with the high construction cost environment, speculative fitouts and increasingly full floor speculative fitouts are a very attractive option for incoming tenants and increasingly more common.

“Competition between landlords across the major CBD office markets remains strong, which is keeping incentives elevated. However, tenants are looking beyond price alone, and landlords will need a strategy to differentiate their offerings in order to capitalise.

“With higher grade supply coming online in some markets, tenants now have more options as they seek to upgrade their office premises. While this is pushing up face rents, that growth is still being capped by higher incentives”.



Rob Dickins, Cushman & Wakefield’s Director, NSW Office Leasing said whilst COVID-19 is firmly in the rear-view mirror, landlords are still navigating their response to the structural changes.

“As has been the case post-COVID-19, quality remains at the forefront for businesses to encourage their staff to return to the office, together with talent attraction and retention of quality staff helping drive the continued push for quality space.

“From this, we are seeing a much higher emphasis on workplace design, with businesses focusing on employee wellbeing and business performance through the optimisation of office space and its design”.


Giuseppe Ruberto, Cushman & Wakefield's Head of North Shore and Metropolitan Office Leasing said “Metro Sydney markets are currently in a transitional phase. Lower grade stock will continue to come under pressure as more A-grade space is added to markets such as Parramatta and Macquarie Park. Both vacancy and incentives are likely to move higher before lower as the flight to quality and flexible working arrangements continue to put pressure on lower grade stock in these markets.

“North Sydney remains well positioned as an alternative to the CBD. Premium effective rents are currently 25%-30% less than the CBD and a limited pipeline of new premium properties this year means that vacancy in this segment of the market will remain tight. The completion of the metro line in 2024 will make transport linkages even more completion and support future growth in face rents.”



Chas Keogh, Cushman & Wakefield’s National Director, Joint Head of Department, Office Leasing Victoria said “Vacancy in the Melbourne CBD is continuing to increase which in turn is putting pressure on incentives, however our market isn’t fuelled by negative sentiment. Good quality assets, that are positioned to deliver on the new way of working post COVID-19 are leasing successfully on stronger than ever net rents.

“Like most markets, there is an absolute flight to quality for all tenants with only 2% of our leasing transactions year to date downgrading the quality of their building. What we are seeing clearly now is a tiering of the market and a situation where good quality assets will continue to deliver strong rental growth and poorer assets with limited investment to be hit harder with limited to no rental growth and larger than market incentives”.


According to Ben McKendry, Cushman & Wakefield’s National Director, Head of Metropolitan Leasing, Office Leasing, Victoria, “Melbourne’s City fringe office market continues to perform well in certain pockets with supply tightening across the inner eastern and inner northern markets.

“Owners who are prepared to spec fitouts in new and refurbished buildings are securing deals on strong face rents. The St Kilda Road office market faces significant headwinds with stubbornly high vacancy and a strong trend of flight to quality underway. The Metro rail tunnel should hopefully reinvigorate this office market when it opens in mid to late 2024”.


Billy Miller, Cushman & Wakefield’s Director, Head of Office Leasing, Brisbane believes Brisbane CBD vacancy has continued to tighten over the last six months, especially in the premium and A-grades, as the flight to quality continues across the city.

“We expect this trend to continue through the second half of the year off the back of no supply additions planned for the rest of 2023, and the labour market remaining tight.

“Off the back of the continued flight to quality, the Brisbane CBD has limited available tranches of premium and A-grade space, which in combination with the strong employment demand, is pushing rents up and vacancy down, especially in the prime market.”


Roly Egerton-Warburton Cushman & Wakefield’s Director, Head of Leasing, WA said “The WA mining sector has continued to drive the economy in 2023, delivering a significant uptick in Perth’s office market.

“Following two strong years of positive net absorption, we are seeing continued strengthening of net rents, and downward pressure on incentives. Construction costs have stablised, but are still very high, driving the demand for speculative fit outs as tenants chase cost effective relocations in short time frames.”


According to Adam Hartley, Cushman & Wakefield's Director & Head of Office Leasing – SA, over the past four months, the traditional enquiry rates in South Australia have decreased across SME’s, however the desire for SME’s to move into higher quality office accommodation remains.

“High quality fitted space such as spec suites are still the most sought-after office accommodation in the sub 500sqm mark. Recently there has been more interest in larger fitted accommodation to reduce the risk of cost and timing blowouts, and now we are seeing larger tenants (over 700sqm) seeking accommodation that not only provides a fit-out but also has an additional incentive that can be taken as rental abatement”.

Mr Hartley said in the over 1,000sqm tenant space, these tenants are taking a cautious approach, and taking the time to ensure the new office space provides the best use of space and delivers the amenity their staff desire to make the workspace as appealing as possible.

“The education sector has been very active and recent 9B Education groups from interstate and expanding existing RTO’s have been leasing space to cater for the increase in overseas students returning to studies in South Australia. With the increase in RTO’s and student numbers into the CBD, the benefit for local businesses to attract new talent will be highly beneficial, not to mention the immediate benefit to local traders”.

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