How Much Rent Should You Pay for Your Office Space?

May 19, 2021
|
Commercial Real Estate

As a tenant, it’s natural to wonder about the cost of office space and if you’re paying too much rent. After all, commercial rent is likely to be one of your largest (if not the largest) business expenses.

How much is office space worth?

Variations in commercial rental rates are influenced by a host of factors, including:

  • The size of the premises – Across Australia, commercial office space is calculated as a dollar rate per square metre (psqm).
  • Market supply and demand – When tenant demand for office space exceeds supply, rental rates usually increase (and vice versa).
  • Location – Many people say that the three most important business decisions you’ll make are location, location, location. Whether it is foot traffic, brand visibility or connectivity you’re after, securing office space in a great spot will be critical. So, it’s no wonder well-located premises attract premium rents. The surrounding tenants and facilities of office premises can influence rental rates.
  • Grade (i.e. the age and general condition of the premises) – For comparison purposes, Australian office buildings are placed in one of four categories: Premium, A-Grade, B-Grade and C-Grade. Premium Grade buildings, for example, enjoy state-of-the-art finishes, facilities and systems and a premium location. On the other hand, C-Grade buildings are of poorer quality. They tend to be located in less desirable areas and usually in need of major repairs or upgrades. As a rule of thumb, the newer the premises or the better the grade, the higher the rent (assuming similar size, location and building facilities). For instance, in the Sydney CBD, Premium buildings currently attract a gross face rent of $1,485 psqm, while B-Grade offices attract an average of $1,030 psqm.
  • The terms of the commercial lease – some rental rates may include the office outgoings (such as council rates and land tax), while the terms and conditions of other leases may require a tenant to pay these amounts as additional expenses. It’s essential for tenants to remain aware of any annual rent increases outlined in their agreement and how these increases will be calculated (for example, in line with CPI or a fixed rate).


Image of office building | Renting office space article

What about the effects of Covid?

Covid-19 has flipped most markets. On the Eastern seaboard, the leasing market has depreciated and is highly competitive, which means more opportunities, higher vacancy, lower rents and higher incentives.

That means tenants with an upcoming lease expiry can usually expect to pay less than what they are paying now for comparable space.

If you have between 6-12 months before your lease expires, take full advantage of the market by conducting a stay vs relocate analysis. Here, compare what your current landlord is offering with what is available on the market to understand where and how you can save on costs.

For tenants signed onto leases with more than 12-months remaining, act now. Start planning your strategy and talk to your landlord about potentially negotiating an early renewal with revised lease terms. Or better yet, work with a tenant representative who will do the legwork for you.

How do you know if you’re paying a fair market price?

As a tenant, the most important thing you can do is to conduct thorough market research for comparable office space. That means analysing the rents of office premises in your area that have a similar size, grade and purpose.

You can source this information by enlisting the help of a professional, speaking to other tenants in the area and/or jumping online to do the necessary research.

When it comes time to negotiate your lease, keep in mind that market knowledge is power and will help you secure the best possible rent deal for your office premises.

Image of identical offices | Renting office space article

How we can help

Tenant CS is a commercial tenant advisory service that caters to businesses across Australia (with a particular focus on office space in Sydney, Melbourne, Perth, Adelaide, Brisbane and Canberra), Singapore and the greater Asia-Pacific region.

We can analyse your existing or potential future office space options and lease terms to make sure you’re paying the right amount of rent for your commercial office space.We monitor national office lease markets for a living, and we’ll save you time, money and the hassle of having to do all the research yourself!

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