Planning ahead imperative for office occupiers, as tightening market conditions demand earlier focus

Melbourne’s office tenants consider alternative accommodation strategies to better support and enhance business productivity

Melbourne’s office occupiers are considering a diverse range of factors to better align accommodation strategies that not only support, but enhance business objectives.

Colliers International’s national director for Tenant Advisory, Tim Farley, has observed a shift in tenant movement in the past 36 months, as businesses have taken advantage of favourable market conditions and joined the ”flight to quality” to secure more bang for their buck.

Mr Farley said key focus areas included environment and culture; work/life balance; collaboration, cross-selling and teamwork; attraction and retention of talent; increasing the talent pool; productivity gains; greater efficiency; and cost savings.

“Occupiers are increasingly looking at means of reducing occupancy costs as a percentage of total revenue, as well as HR-related costs associated with recruitment and attrition rates,” he said.

“Not only has the trend been to look at larger footprints and more efficient layouts, the focus has also been on centralising operations to achieve the aforementioned objectives.

“In part, this has been enabled by more stock options available in the CBD and immediate city-fringe locations, which can best meet occupancy requirements from a design and performance perspective when compared to suburban markets. CBD and fringe opportunities also provide logistical advantages, such as better access by public transport reducing the reliance on travel by car, and the ability to tap into a larger talent pool.

“As a result of the increased demand placed on the CBD to provide suitable options, we are now seeing these opportunities dry up.”

Mr Farley said the effect of this growing reliance on the CBD to provide better and more competitive premises solutions had seen increased demand compared with 12 months ago, with a dramatic reduction of large contiguous supply opportunities for larger occupiers.

“Quite often we see the story of a missed opportunity, where tenants were simply caught unaware of the options available to them, and how best to secure those options whilst achieving a better and more aligned occupancy solution for their business,” he said.

“Having more options generally means more competitive leverage with which to negotiate a strong outcome. When market conditions tighten and the availability of suitable stock reduces, this is where a good tenant advisor will help identify opportunities aligned to key business objectives, and devise a considered strategy to mitigate risk and achieve the optimum outcome.”

Mr Farley said a further lag in supply additions was likely to challenge occupiers’ strategies for the next three to four years, while the construction pipeline and backfill space caught up.

“We are already seeing upward pressure on rentals and downward pressure on incentives, increasing the effective rentals achievable for tenants currently in the market, and providing a more challenging climate from which to source and secure appropriate premises on acceptable financial terms,” he said.

Mr Farley said this trend was forecast to continue for the short-to-medium-term future, forcing tenants to plan well in advance, devise and implement strategies that would best mitigate risk, and secure an optimum outcome in tightening market conditions.

“Depending on the size, configuration and quality of space that may be required, this can mean tenants need to be reviewing their requirements and strategy years in advance,” he said.

“A positive outcome of the trend that we’re seeing is that more and more landlords are seeking to build further flexibility into key assets with the addition of business and event centres, relieving pressure on tenant fitouts and ultimately providing a more future-proof occupancy outcome.”

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