Serviced offices are growing in demand due to an increasing need for flexible office space. There hasn’t been much rental growth for a long time in Sydney, particularly in the office space market but things are tightening up. The vacancies have reduced significantly and there is a lot of office stock that’s been reduced or removed from the market to make way for residential buildings. Big building owners continue to really only be interested in big corporate tenants, such as whole floor tenants with big businesses, rather than subdividing a floor for smaller tenants.
As well as small businesses needing office space, the great hidden vacancy rate has reduced dramatically, by about 50% in the last couple of years. Companies that have had the corner office vacant for a few years, but not wanting to move out of their lease, had sub-tenants who have been paying very little rent. With increased business confidence and, as a knock on, company growth sub-tenants have to move on and find alternative space. They naturally want an office as cheap as they’ve had it, such as a phone with internet for $1,000 per month. The reality is you can barely get a car space in the city for $1,000 per month. If that’s what they’ve been paying then they don’t realise how good they’ve had it. However, once they’ve had a good look around the market place they do understand. All the sub-tenancy opportunities are drying up and there are no real options left at that price.
Looking forward to 2016.
I think it’s clear that rents will rise and the market place will shift away from being most beneficial for tenants to landlords. Knight Frank reported in December 2015 that 560,500m2 of new office space was completed in 2015, up 75% from 2014. Keep in mind that a lot of office space is being built at Barangaroo but that’s a different type of stock, as it’s A grade, high end space unaffordable for smaller businesses or start-ups. 2015 also saw 41% above 2014 levels of permanent withdrawals across the East coast of Australia which is expected to peak in 2016 due to offices being altered to residential use and an increase in hotel and student accommodation. The knock-on effect that’ll have is that incentives will reduce in the market. Goldfield’s house is a good example, which is set to come down as well as the 2-3 buildings adjacent and be replaced by residential property. So again it is the smaller tenants who will be left looking for office space.
Thus, small businesses need other options if they can’t get space in the traditional way. This is when the serviced office industry really provides a solution and can become the central hub for small office users. We operate in quality buildings that are well located, professionally managed and close to public transport. Anything under about 50m2 and it works really well. They can be in the space within 24 hrs and while we run the office they get on with running their business. At UOS we are continually evolving and our many flexible workplace solutions are frequently changing to meet client needs.
We are 100% committed to providing everyone with a 5 star customer service experience with all the support and infrastructure to compete and win in today’s marketplace. Of course there is a cost to this and every business has overheads. Many good businesses are looking to minimise costs to start up and we understand that and try to help where we can by providing competitive rates. We’ve got a start-up coming into Hunter St who wants 6 co-work desks and a serviced office. We’ve cut their rates in half for the first 3 months, then they go up to 2/3rds for the next 3 months, then full rate for the next 3 months, and after 9 months they’ll know if it’s working or not, so I’ve given them a bit of a deal up front to help them so they can grow into it. This works for us, we’re happy to do deals like that. We always get to know our clients well and often become close friends and trusted partners.
It’s going to be a good year for the serviced office industry. Rumour is that Wework has just taken 5,000m in Martin Place. What that means for the industry I don’t know and we’ve yet to find out, but they’ve got a colossal head of steam and they’re just growing.
Serviced offices are not just for small businesses.
In addition to smaller tenants in need of flexible workspaces, a good size of our business is still interstate, intrastate and overseas tenants who want a place to come and work but don’t want a big office or lots of people. It seems to me the wheel is turning, going somewhere for a coffee and a business chat still happens but often frustration can be caused by lack of a quiet corner and lack of privacy. This is why people want and need a private meeting room or business lounge. Again, a serviced office brings a solution by providing office space as when and needed. We provide outstanding services including private offices, virtual offices, day offices, hot desks, co work spaces, shared offices and Member lounges and cafes.
We did a deal with a guy who’s an accountant with 2 offices, one in Taree and one in Foster but he’s got a lot of clients down here. He wants an office down here, to have a city address and to hire 2 staff. As confidence grows and as businesses are starting to get a bit more confident about what they do with their expansion growth, they’ll consider getting a serviced office. If they’re not really sure if it is a good way to go they can come in for 6 months and if it doesn’t work then they can bail as opposed to signing up for a 3 year lease and 6 month bank deposit or a personal guarantee.
Essentially we provide a viable, high quality alternative that adds value to our clients businesses and enables them to be flexible.