Renowned for its cosmopolitan flare, Melbourne has garnered a reputation as the most liveable city in the world, having taken home the actual title of the world’s most liveable city six out of the last seven years.
With such a coveted title seemingly sitting so well on the mantelpiece, it’s no wonder it is now the go to destination for the white collar work force, with a 7% rise in white collar migration in the last 10 years. Melbourne’s low vacancy, currently sitting at 3.2%, coupled with above average levels of migration and limited new stock released to the market, have seen a high demand put onto the ever shrinking availability of small suites.
The small suite sector still provides an important source of income for landlords, historically having the luxury of low let up periods and higher psm rates than their full and half floor counter parts. The introduction and rapid growth of the co-working / serviced office sector has reshaped this particular market leaving landlords in a position where they are working overtime to provide a product that will compete with the likes of WeWork, Hub Australia, Regus and more. Institutional Landlords such as GPT and ISPT have recognised the potential and popularity of these flexible work space providers and have adopted the model, rolling out their own co-working groups within their buildings. To stay ahead of this fast moving trend, landlords are recognising the need to offer vacant tenancies under 300sq m as fully fitted turnkey solutions to tenants looking to ease both time and financial burdens associated with an office relocation. Small tenants can become overwhelmed by the process of leasing space and the majority in this size are seeking hassle free, ‘plug and play’ solutions and are discounting any unfitted tenancies as they struggle to visualise the potential.
Some of the benefits for a landlord providing a fitted suite include shorter letting up periods and control of the quality of the fit-out, which in turn can increase the renewal probability as well as allow a longer lifespan of the fit-out. In addition to these benefits, the effective deal can also swing towards the landlord’s favour as we see higher face rents and lower incentives across the term. Landlords should also consider Economies of Scale when facing multiple vacancies in their buildings or portfolios.
In saying the above, it is also important to note that this model does have potential downsides. When providing a spec suite, it can be difficult to achieve a full make good obligation and if the incoming tenant requires any alterations, funds may be limited as they have been exhausted.
The Savills Melbourne team has transacted a high volume of small suites this year to date and would be happy to provide more in-depth insights into the trends of this market. For further information on small suites, please contact our specialists Charlie Betts and Alissa Woods.