Modern skyscrapers in business district

Subleasing and the Implications of COVID-19

Sarah Newman ||

Subleasing – What is it?

Subleasing refers to an agreement made between a tenant of a property, to a third party for a portion of the tenant’s lease contract. Ultimately, the tenant remains responsible for all their obligations in the lease agreement but becomes a ‘head tenant’ for the subtenant, who does not directly deal with the landlord.

Rise in Subleasing as a result of COVID-19?

Recent data released by CBRE indicates that the number of sublease spaces in Sydney CBD have hit a 10 year high as companies reassess their current needs. Generally, sublease spaces are reserved by tenants who expect their business to expand, but given the current economic climate, it seems that many businesses are now moving to subleasing the extra space in their office.

Subleased office space currently accounts for around 0.7% of Sydney’s total CBD office stock for the first time since 2017, after being non-existent for years. Despite unprecedented attempts to stop the spread of the virus, domestic businesses were among the first to feel the implications of the coronavirus, and since Australia has assumed a reduction in economy-wide productivity of Capital of -0.57% (or a third of the reduction in labour). Andrew Ballantyne states, “Sublease availability is a barometer of business confidence.” As an indicator, the volume of sublease space available in the Sydney CBD has not been this high since the peak of the Global Financial Crisis (GFC).

The CBRE has indicated that COVID-19 is not entirely responsible for the increase of subleasing in Sydney, but ultimately as the effects of the pandemic are being felt by all business owners, an increasing number of tenants will look to offload their surplus office space and reduce their costs. According to PWC, it has been estimated that over the course of a year, the COVID-19 pandemic could reduce Australia’s Gross Domestic Product by $34.2 billion. Office spaces which are becoming available for sublease generally come as a result of unforeseen changes in a business who no longer requires the same office space. Alex Johnson, Director Business Development at Tenant Representation Services states “The GFC was responsible for a spike in sublease space, with 100,000 square metres on the market at the commencement of 2009.” It has been predicted that as the economic effects of COVID-19 come to light, they will mirror if not transcend the implications of the GFC.

COVID-19 brings uncertainty to many tenants, and with current social distancing measures in place as well as a majority of companies transitioning to working from home arrangements, the requirements of an office space have been severely impacted. Steve Urwin of Kernel Property Group notes “an increase in sub-leasing is an indicator of a market in distress, and typically precedes a downturn.” It is predicted that the subleasing market in Sydney will continue to rise in the next 12 months. It is crucial for current businesses under leasing agreements to assess their current needs and adopt a plan for the future as much as is possible in these uncertain times.

If you are a tenant or a landlord and require assistance, please do not hesitate to contact a member of Coleman Greig’s Commercial Property team, who would be more than happy to assist you.

Share:

Send an enquiry

Any personal information you provide is collected pursuant to our Privacy Policy.

Categories
Archives
Author

More posts

SafeWork NSW
SafeWork NSW releases new strategy to address psychosocial hazards

On 22 May 2024 SafeWork NSW introduced a new strategy to address psychological and psychosocial hazards. The SafeWork NSW Psychological Health and Safety Strategy 2024-2026 establishes new supports for employers regarding their duties in preventing psychosocial harm in the workplace.

roles in the strata scheme
Understanding roles in the strata scheme

A strata scheme is a building or group of buildings that have been divided into lots which can be apartments, villas, offices, units or townhouses. This will be articulated in the strata plan.

Airbnb home
Can I put my home on Airbnb?

Airbnb is a form of short-term rental accommodation. To add your property to Airbnb in NSW, you are required to meet several laws and regulations governing short-term rentals.

liquidators required to seek approval
When are liquidators required to seek approval to retain legal counsel?

When does a liquidator (or the company he or she is appointed to) need court, creditor, or committee approval to validly retain a solicitor to act in a liquidation matter which is likely to extend for longer than three months?  The answer to this question has only recently been settled.

Proposed changes to building
Proposed changes to building and construction law in NSW

The Building Bill 2022 (the Bill) is the key avenue through which the NSW Government has proposed to reshape the culture of the building and construction industry by eliminating poor performance and improving the quality of building statewide.

Dismiss an employee
Can you dismiss an employee who fails to return to the office?

Slowly but surely, most employers are requiring employees to return to the office for at least a portion of their working week. Some employers continue to struggle with employees resistant to returning to the office or those who have an expectation that they can continue to work from home whenever it suits them.

Phoenixing in Construction
New powers to combat phoenixing in construction

The rise of phoenixing in the building and construction industry in Australia in recent years has proved a significant challenge to regulators. Mismanagement of time or cashflow can quickly propel businesses into insolvency.

© 2024 Coleman Greig Lawyers  |  Sitemap  |  Liability limited by a scheme approved under Professional Standards Legislation. ABN 73 125 176 230