Has Office Leasing Demand Dropped due to the current COVID-19 crisis?

Let’s take a look at the current office leasing market from an occupiers and landlords’ perspective.

The coronavirus has seen a decline in dealer activity and inspections, however, there has been an increase in enquiries from tenants due to business uncertainty. Tenants have gone into survival mode to get their business back in order with a focus on head count and office space requirements.

Momentum was building prior to the COVID-19 level 4 Shutdown in Melbourne, where most leasing decisions will go on hold until the lifting of restrictions.

There has been an increase in tenants and landlords’ discussions to negotiate a mutually beneficial outcome, where landlords have been offering short term hold overs of 6, 12 and 18 months.

There has been an increase in demand from some market sectors including state and federal government, financial institutions, health and community services and IT companies.

Some businesses are taking advantage of negotiating competitive lease arrangements to move their offices from outer areas to CBD locations. The increase of government spending on infrastructure is also driving demand for office space to accommodate supplier and contracted services industries that service these demands.

From June 2020, subleasing has increased by more than 30% with a demand for generic high-quality fit outs. The subleasing deals have been negotiated quite aggressively which is putting downward pressure on pricing.

Office Asset Class Outlook

The future for office space will still drive demand based on companies wanting to maintain their own unique culture. People want to remain connected and socialise within their business community, they want to collaborate, learn, and share their ideas as a team.

We will see a change within the office environment to cater for social distancing, the adoption of more stringent health and safety initiatives, plus provision for air purification and touchless technology.