The volume of sublease office space in the Sydney CBD dropped substantially in Q1 to the lowest level since January 2022, new CBRE data shows. 
 
Sublease availability declined by 41,000sqm to 88,758sqm over the first quarter of 2024, reducing the sublease vacancy rate to 1.7%. 
 
The decrease was driven by strong leasing activity in the higher quality space on the market and the withdrawal of 20,000sqm of space listed by a single tenant as of year-end 2023.
 
CBRE Associate Director Thomas Biglands said, “Given the recent recovery in return-to-office rates in the Sydney CBD, it now appears that attempts by larger occupiers to right-size their footprints through the sublease market have been placed on hold.

"The addition of large sublease listings slowed drastically in Q1 2024 and only four new sublease listings of greater than 1,000 sqm were brought to the market over the period.”
 

CBRE’s report highlights that sublease listings are now spread relatively evenly across size tranches.

CBRE Office Senior Leasing Director Chris Fisher noted, “Sublease space with high quality fit-outs have been popular with tenants seeking a flight-to-quality and a flight-to-value. Tenants are taking advantage of high incentives in the form of rent reduction to relocate to quality office space on favourable terms.”

CBRE’s data shows that the Banking & Finance sector continued to account for the greatest share of sublease availabilities in the Sydney CBD in Q1 2024, representing 38.1% of the total.  

“The next largest contributor to sublease volumes was the Tech & IT sector, at 16.5% of the CBD total. These two sectors also accounted for the greatest share of new subleases brought to market over the first quarter,” Mr Fisher said.

“We are not seeing the big chunks of new sublease space from large occupiers hitting the market. This has helped the sublease vacancy rate drop to 1.7%, following seven consecutive months of decreases.”

The Core and Walsh Bay precincts saw elevated levels of sublease leasing activity in Q1 2024. Sublease volumes in these precincts declined by 33% and 11%, respectively, over the period. As such, the Western Corridor now accounts for the largest share of sublease availabilities by volume at 33% of the CBD total.

Contraction or shift towards hybrid working are now the most common drivers for occupiers looking to hand back space.

These factors were the driver behind 79% of the sublease space on the market as of Q1 2024 according to CBRE’s data, with the next most common driver of sublease listings being M&A, accounting for 7% of the total. 

“These trends have meant sublease levels are now at one of their lowest points since the onset of COVID. Given the current trajectory and underlying activity by occupiers, it’s possible that the Sydney CBD will reach pre-COVID norms over the next year,” Mr Biglands said.