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Rents and Incentives

Are we stuck in an S-bend?

Tracing prime net rents and incentives over the period 2012 – 2025 (forecast) in the key eastern seaboard commercial lease markets reveals a clear pattern: we are stuck in the S-Bend, and landlords ain’t pressing the flush to get us out!

Effective commercial real estate growth in rents in Sydney reportedly approached 15% in 2019, with A grade net face rents breaching the four-figure barrier for the first time. This is ahead of other state capitals (though only marginally in the case of Melbourne) and coincides with historical lows in vacancy rates and a depressingly distant promise of further supply.

The tight CBD offering has pushed tenants – particularly larger tenants with need of extra space – out to the satellite suburbs. Parramatta, which has long prided itself in being the population apex of Sydney, is newly regarded as a primary destination rather than just the secondary locale for a satellite branch. The same is true in the Melbourne commercial leasing market, where Southbank and the city fringe are attracting substantial refurbishments. Business confidence is showing unexpected resilience, so there is little to give landlords reason to show any more flexibility or imagination.

Lease incentives?  Forget it.

The three top reasons landlords offer lease incentives are:
1. Price adjustment – short term price revisions to attract tenants in that they don’t become embedded in long term commercial leases;
2. Fitout offsets – to tempt tenants in when they don’t have free cash to service initial capital works; and
3. Competition in the commercial real estate market.
It’s hardly likely that we will see any of these come into play until supply starts to resurge – the latter side of 2020 in Melbourne, and not until 2022 in Sydney. This is where we, your expert independent commercial tenant advisor, can assist. We apply our extensive knowledge of the commercial real estate market to your lease renewals, lease negotiations, and office fitouts, ensuring we deliver the best possible outcome for you, the tenant.If your lease is nearing the end, or you require tenant representation on make good obligations at the end of your lease term, we will gladly assist, get in touch with us today!