OPERATORS NOW COMPETING WITH LESSORS
With businesses needing flexibility to scale up and down, a more fluid approach to how a workforce is employed is becoming the norm. From hiring freelancers to complete a project, to bringing on a team of contractors during a busy time or as part of an expansion strategy - businesses are seeking flexible workspace options.
Is this a trend or a permanent change in how we work? And more importantly, can landlords compete with serviced office and coworking office suppliers?
WHEN I SPEAK WITH TENANTS ABOUT WHAT THEY WANT IN AN OFFICE LEASE THE ANSWERS ARE PRETTY CONSISTENT.
• We want fitted space built to a high standard
• We want to minimise capital costs on fit out and furniture
• We don’t like the cost and hassle of a make-good
• We want flexibility to upsize or downsize our space as our business changes
• We want to minimise the capital tied up in bonds for the lease term
• We want an office environment or building with like minded people, with business synergies and networking opportunities
• We want to be in a quality building with good services and high quality End Of Trip facilities
• We want high speed data.
COMPARE THIS WITH TRADITIONAL OFFICES CURRENTLY FOR LEASE IN SYDNEY CBD.
• Vacant office space for lease with no fitout or furniture
• The tenant has to fund the fit out cost, which might include a two month fit out period and approximately$700 - $900 psm to fit out
• The tenant has to undertake a full make good, which might include a one month make good period and a cost of around $150 - $250 psm.
• The tenant has to lock in a bond of 6 to 12 months rental
• There’s no flexibility to upsize or downsize without significant fees and time periods associated with subletting, assigning or surrendering a lease.
• On many leasing deals lease incentives are now sub 15%, meaning a majority of capital costs are now a capital cost to the tenant.
Flexible work space, serviced offices and coworking environments offer tenants everything they want, and more. Very often flexible work space is being offered at a price lower than direct space due to the bulk buying power and larger lease incentives on long lease terms secured by these larger serviced operators.
WHO ARE SYDNEY’S FLEXIBLE WORKSPACE PROVIDERS?
- WeWork - 333 George St, 5 Elizabeth St, 100 Harris St Pyrmont
- Regus - 1 Market St, 95 Pitt St, 201 Sussex St, 20 Martin Pl, 135 King St, 52 Martin Pl, 2 Park St
- Servcorp - Barangaroo, Chifley Tower, Gateway, 44 Market St, MLC Centre
- The Executive Centre - Aurora Pl, 1 Bligh St , Three International Towers, 1 Bligh St, Australia Square, Governor Phillip Tower
- Compass - 1 O'Connell St and 9 Castlereagh St
- United Office Services - 20 Bond St, 66 Clarence St
- Gravity - 50 Carrington St
- Clarence St Professional Offices - 111 Elizabeth St, 65 York St
- Hub Australia - 223 Liverpool St, 101 William St
- Work Club - 99 Elizabeth St
- Christie Corporate - 3 Spring St
- Tank Stream Labs - 17 Bridge Street
- Co Ten - 227 Elizabeth Street
WHAT WILL LESSORS NEED TO DO TO ADAPT
I believe Lessors will need to compete harder to provide more flexible solutions in order to capture this continuing trend. Key factors lessors need to focus on:
• Fitted and furnished work spaces with fitouts installed by the Lessor
• Considering shorter term leases at a price differential to longer leases
• Provision of shared meeting rooms and facilities for tenants to use
• Increased flexibility built into leases to allow tenants upsizing and downsizing
• Flexibility on bonds where there is no upfront liability to the Lessor on a lease
• Sensible and simple solutions on make goods to existing fit outs
• Creating a business networking environment within the building
Flexible work spaces are increasing their market share in Sydney CBD and their sweet spot is targeting business from 5-30 staff - we’re seeing them win a lot of business. This is taking potential revenue away from property owners that might otherwise secure these tenants in direct office leases.
Lessors will need to try to compete with Flexible Workspace solutions to secure small to medium businesses. In order to remain competitive, savvy landlords are now offering ?exible workspace solutions in their office towers, such as Dexus and GPT.
Ray White’s top 10 listings for November: (Click on address to view listing)
5 / 9 Castlereagh Street, Sydney
14 / 77 King Street, Sydney
14 / 1 Market Street, Sydney
4 / 62 Pitt Street, Sydney
9 / 46 Market Street, Sydney
11 / 61 York Street, Sydney
8.03 / 46 Market Street, Sydney
10.01 / 45 Clarence Street, Sydney
7.01 / 261 George Street, Sydney
14 / 187 Macquarie Street, Sydney