Rich pickings for sub-leases

With decent supply of new office space in Perth’s CBD at least two years away and rents continuing to escalate, some companies are starting to sub-lease non-essential space to take advantage of strong market conditions.

Telecommunications provider iiNet is one such company to cash in, having moved a small number of staff to its Sydney office and sub-leasing a part of its new office under construction in Hay Street, West Perth.

WA Business News revealed in June that iiNet had pre-committed to 5,000 square metres within a new 9,000sq m A-grade office complex in West Perth, being developed by Luke Saraceni on the former BBC hardware site.

It is understood the sub-leased space could fetch more than $500/sq m in the current market, significantly higher than the $350/sq m the building was originally priced at.

More sub-leasing activity in West Perth is occurring at 56 Ord Street, where patent attorneys Wray & Associates pre-committed earlier this year to about 3,000sq m of space.

Advertised for $375/sq m earlier this year, the new complex is tipped to achieve more than $500/sq m for a sub-leased floor when completed shortly.

Jones Lang LaSalle national director of office leasing, Warren Wright, said there was some sub-leasing activity happening in the Perth market, but generally tenants were holding on tightly to whatever space they had.

“Some tenants that are paying under $300/sq m are now getting $500sq m on sub-lease. If they could get double the rent, then I think some might say ‘let’s move over east’,” he said.

New figures from Jones Lang LaSalle show the vacancy rate in the CBD fell to a record low of 0.53 per cent at the end of September, down from 0.7 per cent in July.

However, some property pundits are suggesting the vacancy could be as low as 0.4 per cent and falling.
Further strain on the market is expected next year, with the 156,200sq m of new space due to be completed by the end of 2009 likely to be delayed until 2010, according to the report.

Property Council of Australia (WA) executive director Joe Lenzo said he knew of one company that had re-located staff to Adelaide because it couldn’t accommodate them in Perth.

With Perth offices bursting at the seams, Mr Lenzo said the situation was placing more pressure on air-conditioning systems and lift infrastructure in many of Perth’s prime buildings.

“It’s an issue we have to face in the short-term because once people move into pre-committed space the vacant space will also be quickly taken up,” he said.

Mr Lenzo said he had noticed a lot more people were “hot desking”, or doing work from home.