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Mid-market becomes the ‘sweet spot’ in office sector in early 2019

Colliers International launches new Office Demand Index

The mid-market has emerged as the sweet spot in key Australian office sectors in 2019, according to new data from Colliers International. 

Colliers International’s latest Office Demand Index recorded 644,619sqm of demand for office space of all sizes in Q1 2019. This represents a 3% increase compared to Q1 2018 in terms of area.

Demand for office space between 1,000-2,999sqm increased by 33% on area and 41% on number of enquiries, from Q1 2019 compared to Q1 2018.

Simon Hunt, Colliers International Managing Director of Office Leasing, said this was an emerging trend in office enquiry across major markets in the first quarter of 2019.

“It seems the sweet spot is the mid-size market, with a notable increase in businesses actively searching for office space in the 1,000-2,999sqm range,” Mr Hunt said. “In 2018, we saw demand primarily for office space over 3,000sqm and the year before the demand centred around small businesses under 1,000sqm.”

“We believe this is the case due to much of the demand for large office space, including new developments coming in 2018, which were tenants coming to the market early to ensure they didn’t miss out on prime new development opportunities.

“However, we may see demand for office space over 3,000sqm increase during 2019 due to the upcoming Federal Election and the Financial sector seeking more space due to the Royal Commission.”

Metro office markets, including Brisbane metro, North Sydney and Canberra, recorded notable increases in demand in the first quarter of this year, whilst all other locations have seen slightly less demand.

“We believe that this is due to the tightening market conditions in all CBD locations and due to the fact that last year much of the demand was for space over 3,000sqm, compared to this year where businesses are showing more of an interest for office space in the mid-segment of the market,” Mr Hunt said.

Mr Hunt said the Finance and Flex-Space sectors were driving demand for office space in major markets in early 2019. 

“We have already seen positive enquiry levels for Q1 2019 and we do expect to see these sectors enquiry to grow during the year due to the royal commission and the trend of flex-space becoming more prevalent and essential for businesses,” he said.

“When it comes to transactions, the IT and Education and Training sectors has been dominant early on this year. Just recently we have seen Trinity College commit to 7,760sqm of space at 611 Elizabeth Street, Melbourne; a new development by PDG, in a leasing deal by Colliers International’s Edward Knowles and Michael Darvell.

“We should see an increase in activity coming through from the finance, flex-space and government sectors throughout the remainder of the year, with the impending federal election a contributing factor.”

Anthony Clark, Colliers International Director of Tenant Advisory, agreed flex space and finance operators would be active drivers of demand. 

“There are a number of flexible operator deals currently pending across various capital cities and we expect to see another increase in the level of absorption from the flexible space sector in 2019,” Mr Clark said.

“We also expect to see a number of deals announced in the finance sector, particularly for those who are seeking to separate business functions off the back of the royal commission. At present, most of the major institutions have an active requirement of this nature.”

“Despite the current supply/demand imbalance in Sydney, we see the incoming supply cycle, and associated backfill, delivering large tranches of contiguous space from late 2020 onwards. This presents opportunities for lessees to create value.”

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