There is a quiet revolution happening in the Sydney commercial real estate market. With rents rising, smart tenants are examining their options and are looking to make their office space work a lot harder for them. These tenants talk about productivity, worker satisfaction and flexibility rather than rent per square metre.

Michael Cook, Group Executive, Investa Property Group offers Telstra as an example of this new forward-thinking tenant. "They provide 'I' space, 'We' space and 'Our' space," he explains. "Telstra is offering its employees higher-quality space but less at an individual level than they used to. It has increased density and this is a trend we expect to see more of as rent levels increase and available stock contracts."

Demand is growing

The Global Financial Crisis wreaked havoc on the commercial real estate sector. Vacancy rates rose, new constructions were put on hold, and rents either dipped or remained static as the market turned bullish for tenants. "Those years, 2008, 2009 and early 2010, were among the toughest for the sector in living memory," Cook says. But that position has changed dramatically in the past 18 months. It is now difficult to find premium quality office space in Melbourne and Sydney. Cook points to 101 and 120 Collins Street in Melbourne that are both full and to the early demand for 171 Collins Street, despite it being two years away from completion. Sydney has a slightly higher vacancy rate but demand is growing, especially for top-tier accommodation.

According to Cook, these have been the best of times for tenants. "In real or inflation adjusted terms, tenants in Melbourne and Sydney are paying almost half the rent they were paying 25 years ago," he argues. This cannot be sustained and he believes there will be a positive compound annual growth in rental levels in the near future. "Rent is not a big operating cost at present but it will grow and it will put pressure on the bottom line."

Shift towards efficiency

To future proof their companies, Cook advises tenants to consider changing the way they work and to look at greater density levels within their space. "It's about using existing space more efficiently, perhaps moving to an open-plan design. There has certainly been a swing towards activity based work spaces."

The emotional impact for employees of working in a Premium Grade building should never be underestimated. Feeling positive about the working environment supports greater productivity. But premium is not the preserve of new buildings only. Consider the grand old dame of buildings, Grosvenor Place in Sydney.

Keeping ahead of the competition

Designed by the great Harry Seidler nearly 25 years ago, it can still compete with the newer pretenders in the market because of the commitment of its owners, who have spent generously to keep it at cutting edge. Last year, $30 million was spent on a makeover for its lobby and ground floor amenities. Its solar panels have been replaced to keep pace with technology and its lift system has been completely upgraded.

"Grosvenor Place offers a great location with best Sydney Harbour views and it also provides efficient, column-free floor space," Cook says. At 85,000 square metres, it is one of the country's largest single buildings, occupying an island site with light and views all round. "This is premium quality at its best," he adds.