The performance and levels of demand seen in the Sydney CBD office subleasing market serve as interesting indicators of general market sentiment and perception of economic performance. Between 2019 and 2021, we saw subleasing vacancy steadily rise as companies found themselves with surplus space, largely due to work-from-home trends driven by COVID-19. Since then, head leases offering sublease space have expired, providing large tenants with the opportunity to reduce their office footprint. As a result, these subleasing opportunities have been removed from the Sydney office market.
Sydney subleasing vacancy has been steadily decreasing from a high of 1.5% in January 2021 to 0.8% in January 2025*. The decline has been driven by tenants tackling an evolution in the traditional use of the office and thus reducing their footprints, which has resulted in a reduction in the average sublease size. Q1 2025 has seen an increase in sub 200 sqm. briefs issued to market, with a focus on fitted space, and accordingly subleases in this size range are expected to continue performing well in the coming months.
In years gone by, tenants and subtenants have been quick to strip out existing fitouts in favour of new office space purpose built to perfectly meet their requirements. However, economic difficulties, coupled with increased construction and fitout costs, have pushed tenants to retain as much of an existing fitout as possible. Incentives are currently elevated, providing tenants and subtenants with capital contribution to fitout, rental abatement spread across the term or a combination of the two. These full market incentives, coupled with subleasing space that is typically already fitted, provides subtenants with very attractive commercial opportunities when the headlease terms align with the sublessees internal strategy.
If a tenant has a unique fitout requirement, the pool of potentially viable options is smaller, and sublease opportunities are often discounted as they are typically already at least partially fitted. With limited control over the terms and increased coordination between parties required, particularly regarding make good obligations and option periods, sublease opportunities can be quickly discounted due to these terms not aligning with internal business strategy. But when the existing terms align with the sublessees strategy, and cost recovery meets the sublessors expectations, subleases can be a very attractive outcome for both parties.
It is Charter Keck Cramer’s view that as upcoming supply slows down and existing stock is absorbed through organic leasing demand, total Sydney CBD office vacancy should begin to decrease and the market should stabilise. However, it is widely reported that after enforcing return-to-work policies some larger tenants no longer have enough space to properly accommodate all their staff. The movement of hybrid work policies has been cyclical since COVID-19 with companies initially offering flexibility to now requiring their staff back in the office. If these return-to-work policies are here to stay, we may see larger tenants increase their footprint which could result in subleasing space being offered back to the market in the next cycle.
Oliver Daniel, Executive | Advisory, Charter Keck Cramer
Source: *Property Council of Australia – Office Market Report
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