Office space in Sydney’s new Barangaroo precinct has been identified by many as being both efficient and innovative – while previously this was seen as the domain of larger corporates some smaller thinking is now solving a problem faced by commercial landlords the world over.
As JLL’s Head of Leasing in Australia, Tim O’Connor, explains, Tower One, International Towers Sydney, Barangaroo was initially pre-committed by three larger anchor tenants. In order to accommodate the future growth requirements of two of these users, expansion rights were included, resulting in two floors with restricted tenure. Flexibility that was essential for the long term anchors, left the developer with the question of how to seek a return on these floors in the interim.
“Typically, tenants occupying areas equivalent to a whole floor in Tower One want long leases and are therefore less interested in floors with a term restriction,” O’Connor says. “The issue was; how do we generate the highest return for our client in the short term?”
The solution was not to go big, but to go small. The two floors, totaling approximately 4,600 square meters, were subdivided into smaller, fully fitted and furnished tenancies of around 160 to 300 square meters. While the concept of fitting out smaller suites is not new, doing it in conjunction with the construction of Australia’s largest office tower in order to reduce downtime was unique. And, the strategy has proved successful, providing turn-key solutions for a tenant-type that did not previously exist in Barangaroo – small businesses of around 20 to 40 people.
“We had done a lot of research into the small tenant market,” says Will Hamilton from JLL’s Office Leasing team responsible for the project. “These businesses don’t necessarily have the infrastructure that large organisations have. Many don’t have the time to be talking to project managers and furniture companies – they’re more focused on their day job and so removing the barrier to entry by taking care of the fit out and furniture has a lot of appeal. Given the size of the businesses and potential for them to grow, they’re often more comfortable with short term leases.”
“We were able to offer everything from design to procurement to fit out across those two floors. Tenants can literally walk up and move in. For other tenants, it was their first entry into Australia. They perhaps don’t have the local market experience or time to set up an office here from scratch.
The exercise was particularly innovative as it used a new approach which saw the construction of the suites occurring at the same time as the building – rather than the traditional post completion.
“There was some time involved in proving up how the strategy was going to work as it had not been done during the construction phase previously,” says O’Connor. “The ‘why’ wasn’t hard, it was the ‘how’ that was challenging. But the team was able to change its focus from developing the building to developing these suites, and in the end it was positive – it’s now a great case study in innovative thinking in leasing.”
“There had been a perception that Barangaroo and the International Towers were just for big users, but these smaller tenants are certainly changing the tenant mix in the building both in terms of size and industry,” explains O’Connor. “We were able to work with the developer and broaden our offering by developing smaller suites, helping them structure these deals and create flexibility in the tower.”
The result for Lendlease was that by offering a space as a completed, but flexible, solution for tenants, ready for occupation and without an overly lengthy lease commitment, it was appealing to the target market.
According to O’Connor, 75 percent of the suites are now leased, and he’s confident that the balance will be taken up soon.