As workers return to the office in increasing numbers, landlords are expected to reduce office leasing incentives in 2023, according to experts in the field.
Incentives such as rent-free periods and rent abatements have become common, but as vacancy rates decrease, landlords will look to tighten their deals and offer fewer incentives, according to commercialrealestate.com.au.
James Montague, Senior Director and Head of Office Leasing Queensland at JLL, believes that while incentives will begin to track down, they won’t completely disappear.
“What we see is, when vacancy rates start to come down, and supply shortages occur, then the deals start to tighten up, so we’ll get a bit more rent and fewer incentives,” he explains.
However, research conducted by Colliers based on 2022 indicates that incentives may continue to be offered at lower-quality offices and poorer locations, while higher-quality offices may experience a reduction in incentives.
Meanwhile, landlords of premium buildings with top amenities and high levels of environmental, social, and governance initiatives may be able to demand higher rents.
JLL Senior Analyst Bianca Ziegenfuss said landlords may need to be cautious about increasing rents due to rising interest rates and general macroeconomic uncertainty.
“With tenant indecision returning as a consequence of the rising cost of debt and general macroeconomic uncertainty, landlords may need to soften their approach to rental increases in the near term,” she said.
JLL’s analysis of CBD markets in Sydney, Melbourne, Brisbane, Perth, and Canberra shows a slight lift in incentives from 37 per cent in the fourth quarter of 2021 to 37.5 per cent in the same quarter of 2022.
Speculative suites are currently the most popular incentive trend in the “flight to quality” market, according to Mr Montague.
These suites come with everything a business needs to move into an office without investing time or money in the fit-out.
High-end fit-outs will be a common incentive offered by landlords with an eye on value this year, according to Aaron Weir, a director at commercial property group Resonate Partners.
As the trend toward returning to the office continues, tenants are likely to seek high-quality spaces that promote collaboration and creativity, and landlords will need to offer attractive incentives to secure their tenancy.