Atlassian, Lendlease give discount deals for office subtenants
Office users open to short-term deals are locking in incentives worth 35 per cent in top Sydney towers, as the amount of CBD sublease space rises and corporate tenants cut their losses on underused space.
The amount of subleasing space available rose by 3 per cent to about 140,000 square metres over the three months to October, although that was a slowdown in growth compared with the 31,000-square-metre increase recorded in Q2, according to CBRE data.
Lendlease recently subleased two floors at Barangaroo Tower 3 as part of its tenant reduction strategy. Anthony Johnson
Of these sublease availabilities, about 35 per cent were for leases that expire in 2024 or 2025.
As companies try to recoup the costs of renting underutilised space in a market where there is lots of office space available, short-term subleases earning back 50¢ on the dollar was not uncommon in the current office market, Colliers office leasing managing director Cameron Williams said.
“In today’s market, depending on where the office is located, incentives can be as high as 35 per cent or more. You’re already losing 35 per cent,” Mr Williams said. “Then you’ve got the time in which it takes to find that tenant, and you’ve got other costs associated with the transaction. So 50¢ on the dollar recovery is a good outcome.”
By comparison, leasing incentives sat at about 30 per cent of total lease value as of August.
Recent Lendlease subleasing deals at Barangaroo Tower Three provide a snapshot of how much of a discount subtenants are paying in the Sydney CBD. The listed company subleased one floor each to digital media consultancy Mighty Hive and tech-focused workspace provider Tank Stream Labs.
Lendlease’s lease deal for those two floors were set to expire in mid-2028, and it was paying passing rent of about $1271 a square metre. In the subleasing deals, Lendlease is receiving about $1150 a square metre but it gave 35 per cent leasing incentives, which amounts to getting back about 45 per cent of its passing rent, The Australian Financial Review understands.
Meanwhile, Atlassian has subleased 40 per cent of the space across its five available floors and about 55 per cent is in negotiations for its 341 George St office. It is understood that the completed subleases came with incentives of over 50 per cent. The tech giant’s lease for those floors is set to expire at the end of 2025.
Mr Williams said companies needed to be confident about what space they needed, flagging that some may be better off holding on to space to account for potential growth.
“If you’re unsure and thinking you might need the space back in a couple of years, then we would be advising to hold tight because once you’ve let it go at 50¢ on the dollar then you might have to do a bigger move in order to accommodate growth,” he said.
According to CBRE data, companies downsizing footprints due to hybrid working was the most common reason for occupiers giving back space. Downsizing accounted for 54 per cent of the sublease space on the market. Consolidation was the next biggest reason for subleases, representing 24 per cent of the total.
The banking and finance sector accounted for the greatest share of sublease availabilities in Q3, at 33 per cent of CBD total. The next largest contributor was tech, at 19 per cent. Those sectors were hit by remote work and rising rates, which forced companies to make tough calls about cutting costs and raising capital.
Tech companies that put up office space for subleasing but have yet to find subtenants include Tyro at 55 Market Street, NTT at Darling Park, as well as Salesforce at Salesforce Tower. Other companies include AGL at 200 George Street.
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