Sydney office market rents are set to fall by up to -15% in the next year, according to Citigroup and DTZ, or, according to CB Richard Ellis, by up to -8%.

About 60% of tenants in Sydney’s main business district are financial and insurance firms, which are bearing the brunt of the global credit crisis. Tenants have started to sub-lease space at a discount, halting five years of double-digit rent rises.

About 43,000sqm of sublease space is in the market, double the amount just six months ago, according to CB Richard Ellis. Although the figure is only a fraction of the total 4.7msq ft of office stock in the city, rents in the sublease space are competitively priced. Landlords are also offering more incentives to lure tenants such as finance for re-fits and relocation.

The average lease incentive is now 20% of a long-lease, or equal to 24 months of free rent on a 10-year contract, compared to 15% in 2007. Property industry executives expect the incentives to go up to 30% or more next year, a level not seen since the early 1990s, when the Sydney property market had a sharp downturn.