Similar to other markets the property market changes on roughly a 7-year cycle, transitioning through two main phases, Tenant Friendly Market and Landlord Friendly Market. So what exactly is the difference and what does that mean for you?

Tenant Friendly Market: In a tenant friendly market there has been a contraction in the demand for office space. With large amounts of space available, the tenant has a range of choices, at a reasonable price and therefore the upper hand in negotiating contractual terms. To lock in contracts, landlords typically offer attractive leasing incentives in excess of 20% in order to secure tenancies, providing great savings to tenants seeking out opportunities.

Landlord Friendly Market: When the economic climate is strong and less commercial real estate available, the market becomes Landlord friendly. With fewer options available to the tenant, these options are in high demand and tenant's negotiating power is reduced. Consequently, lease incentives can fall as low as 10%.

Markets vary depending on their own unique economic, stock and geographical circumstances and the laws of supply and demand.

COMMERCIAL REAL ESTATE - SYDNEY (TRANSITIONING TO LANDLORD FRIENDLY):

From late 2015 the Sydney CBD market has illustrated considerably high levels of tenant activity. This in combination with the announcement that the State Government would be compulsorily acquiring several sites (55 Hunter Street, 12 Castlereagh Street, 39 Martin Place & 175 Castlereagh Street) for the construction of the Sydney Metro Line will see approximately 350,000m2 of stock being withdrawn from the market over the next 4 years.

THE RESULT: The latest Property Council statistics show that Sydney CBD office vacancy has decreased to 6.3% due to considerable growth and expansion being experienced within the tech sector and a high number of tenants looking to relocate to within the CBD. This has ultimately put pressure on lease incentives. In the middle of 2015, PCG achieved leasing deals in the Sydney CBD with incentives ranging from 26-32% gross. Currently, the threshold is moving towards 21-25% gross for new leases. With this increased pressure on the secondary market, particularly within the CBD core, 2016 onwards could see a large number of tenants forced out to the southern CBD, mid-town, CBD fringe or even to the North Shore.

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MELBOURNE COMMERCIAL REAL ESTATE BOOM

Melbourne has had several new buildings added to the Melbourne CBD market as new developments open throughout the CBD and in Melbourne’s Docklands vicinity. With significant levels of stock (over 125,000sqm) added throughout 2015, the market has still managed to adsorb a total 116,763sqm, a clear indication of the demand from tenants. This is particularly evident with smaller tenancies taking up the opportunity of smaller suites and medium sized tenants taking on partial floor leases.

For organisations that want to make sure they get the most value from the commercial office leasing market you can download our “How to Extract Maximum Value from the Commercial Office leasing Market”.