Office tenants have been relocating into better spaces in droves across Australia this year and paying more rent as a result, says CBRE’s Sameer Chopra. 

Chopra, the Head of Research, Pacific and ESG Asia Pacific at CBRE, said they analysed 140 office tenants that had relocated and found the majority of those tenants were paying more rent as a result of the move

CBRE compared the rents that tenants would have paid to re-sign in their existing space against the cost of relocating to a new space. In their analysis, they revealed that a third of those tenants were easily paying over 25% more in rent.  

“I thought most people would be getting haircuts, wanting cheaper rents, and downgrading. Instead, what we’re seeing is people are buying better and moving to something better,” Chopra said.  

“Rent doesn’t matter for many companies. Rent in a lot of professional services businesses is 2% to 4% of total costs. Labor is 40% of total costs.” 

The findings come as many firms weigh up hybrid work models and the need for office space, as some workers opt for working from home.  

Chopra gave an example of a law firm tenant that had planned to move recently: “I asked why they were moving, and they said, ‘currently we’re in a legal district, but we get all of our business from investment banks… We need to be in the same lift well as the investment banks because that’s how we’re going to make money’. So, they’re moving from okay offices to very schmick offices and they’re paying for it. So like I said, rent is a very small component for many occupiers.” 

Which sectors were on the move?

Chopra said some of the office occupiers that were most interested in upgrading were design firms, engineering companies and professional services companies.  

Occupiers in the finance sector were also interested in upgrading; however wealth managers were more likely than banks and insurers.  

“It’s those types of companies that are quite happy to pay up quite significant rent increases to move into these cool locations,” he said.  

Chopra and his team also analysed tenant footprints and found a lot of tenants were relocating to similar-sized spaces rather than downsizing. 

“But if you look at tenants that are medium-sized enterprises, they’re taking up 7% more space. So not only are they taking up more expensive space, they’re taking up more space. And this keeps coming up in every discussion,” he said.  

“Every business is on a growth footing. Most businesses in Australia are thinking about growth and so they need more space to go with it despite hybrid work.” 

For example, Chopra said the big four accounting firms – Deloitte, PwC, KPMG and EY – hired 5,000 people in Australia last year.  

“This year, they are planning to hire 4,000 additional staff. I just want to mention that because they’re one category within the [professional services sector]. None of our clients right now in that professional services sector are cutting back… They’re all in expansionary mode.” 

Office rental growth 

Looking at the office rental growth story, Chopra said office rents were now expected to increase later in the year or early next year.  

For 2022, CBRE expects Sydney, Melbourne and Canberra CBD prime office face rents to grow 4%.  

CBD prime office face rents in Brisbane and Adelaide were predicted to rise 3% and 2% respectively, while Perth rents were expected to remain flat.  

Chopra said sustainability and energy efficiency factors were also influencing office rents across the country.  

CBRE compared rents in office buildings based on their NABERS ratings and found that buildings with the highest ratings attracted rental premiums, while those with the lowest ratings faced rental discounts. 

“If a building had a six-star NABERS rating, it would typically command about a 6% rental premium,” Chopra said. 

“If a building had a three-star NABERS rating, it would typically have something like a 6% to 8% rental discount. So, that’s the delta between very good ESG-rated buildings versus buildings that are not. A lot of things come into this such as location, so we can’t just say ESG is the only driver of value. But when clients ask me what the business case is for upgrading the building, I say here’s the business case for upgrading your office stock.” 

Chopra spoke at the Australian Property Institute’s NSW 57th Annual Kiparra Day Conference in August.  

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