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Fitzroys 2022 Outlook: Office Leasing

Posted on 09th February 2022

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Tenants Looking To Take CBD Opportunities, COVID-Safe Spaces, While Landlords Need To Act Fast

Melbourne’s CBD is beginning to attract more interest from tenants looking to take advantage of more competitive offerings and the vast array of amenity that the CBD offers.

“Tenants are entering the CBD from fringe locations on more competitive deal offerings than what was feasible before.” said Stephen Land, Associate Director, Office Leasing at Fitzroys

The sub-1,000sqm and sub-500sqm markets have been the most active within the CBD as many companies continue to assess their business and space needs. More than three-quarters of all enquiry is coming from the sub-1,000sqm market, Land said.

“The CBD’s 100sqm-300sqm market has been in high demand even during the last 18 months. There is a shortage of decent-quality fitted stock in this size range and this will remain a hot spot for tenant activity during 2022.”

New and modern fitted office space remains very desirable as tenants have been hesitant to undertake extensive fit-outs. Any premises with open air courtyard, terrace, balcony or rooftop space, or even openable windows are in demand as they create a more “COVID-safe” office environment, Land said.

Fitzroys note that there is strong interest in creative and boutique office spaces, offering exposed ceilings, concrete floors and other character elements.

“These authentic character spaces never go out of fashion, no matter the economic climate,” Land said.

Flight to quality

“Companies are now taking out new leases, creating a modern and efficient workplace for staff to return to work for improved culture and collaboration. This ‘flight to quality’ trend will continue and gather pace as the year unfolds,” Land said.

“The war for talent is now being felt in all areas of business and the workplace is an integral part of that trend.”

The “flight to quality” trend in the CBD is seeing tenants enter higher-grade buildings with best-in-quality building services, new end-of-trip facilities, and a vast array of retail amenity where they could not prior to the COVID-19 pandemic.

Phillip Cullity, Director of Office Leasing, said landlords are being increasingly proactive in completing capital upgrades and building refurbishments, namely providing new end-of-trip facilities and facelifts of entry lobbies and foyers.

“The challenge for companies is to encourage tenants back into their respective offices and they can do this by offering them an office or building which has enticing facilities – particularly as companies begin to embrace and promote health and lifestyle within the business,” he said.

“Tenants are looking for offices and buildings that have all these modern services and facilities services in place. Older office buildings are falling behind in this respect and as a result are reducing the amount of prospective tenants they can attract to the building.”

Institutions are also putting more effort into their food and beverage and lifestyle offering within major assets. Fitzroys has recently leased space to renowned bakery and café Rustica within GPT’s Queen & Collins development, as well as a new restaurant space to hospitality veteran Max Ibrahim beneath the newly completed 405 Bourke Street Melbourne head office for NAB.

“Lifestyle and hospitality attributes and accessibility are now undoubtedly part of a holistic work experience. Landlords are looking to not just draw workers to the office, but also to make their assets more a destination in their own right, attracting people for coffee, meetings, or for breakfast, lunch or dinner,” Cullity said.

“They also present a drawcard for businesses wanting to attract and retain top-tier talent.”

Shorter-term leases in vogue

Land said that while there have been more shorter lease terms being offered and considered in the market throughout the pandemic, established tenants are now committing to longer leases.

“We are optimistic that general tenant engagement and interest will rise once we return to a more stable COVID situation. However, there will no doubt still be some hesitation from tenants in the market and as such, some shorter leases or deals of two to three years with options will still be prevalent,” he said.

“Businesses are still weighing up how the new flexibility and remote working will tie into traditional work and assessing exact sizing requirements, along with targeted growth and future space planning needs.

“However, we’ve seen tenants in negotiations for 350sqm whole floors looking at five to six-year leases with options respectively. This suggests we will see some tenants become more comfortable making longer-term commitments.”