Deals show that offices on fringe of Sydney are in hot demand
Climate action consultancy South Pole Australia has leased space in Darlinghurst, Sydney.

Deals show that offices on fringe of Sydney are in hot demand

Demand from tenants to work closer to home has led to a dramatic rise in rents in Sydney’s city fringe zones with tech, food and media companies comprising the bulk of the leasing deals.

This has led to a rise in rents as prices of office real estate on the city’s fringe now rivalling that of the core CBD locations.

Media group Forbes Australia, climate action consultancy South Pole Australia and QR-code food ordering and payment platform Mr Yum have recently signed leases in Surry Hills, Darlinghurst and Pyrmont respectively, highlighting the demand for newer, high-quality office product close to the CBD.

Colliers, which completed the leases, said it had recorded a sharp rise in enquiries for office space in the Sydney core fringe locations. The amount of space enquired about increased from 49,695 square metres in the first quarter of the calendar year to 63,800 square metres in the second quarter.

Demand has increased for newer, high-quality offices with proximity to the CBD, connectivity to public transport, amenities and infrastructure, according to Justin Rosenberg of Colliers, who secured the Forbes Australia and Mr Yum leases, and Teresa Chen of Colliers, who secured the South Pole Australia lease.

“Current fringe and metro occupiers are staying true to their preferred locations despite the attractive terms on offer within CBDs, while the core fringe locations are drawing new creative, tech and entrepreneurial tenants,” Rosenberg said.

New research from Knight Frank showed there has been substantial growth in rents on the city fringe, with prices closing in on the major Sydney CBD precinct values and already outperforming inner-city assets.

In the last five years, the Sydney city fringe has at least doubled the 12 per cent net effective growth in the Sydney CBD with Pyrmont and Surry Hills seeing rental growth of 60 per cent and 40 per cent respectively.

City fringe rents remain competitive against other Sydney markets, with net face rents across the fringe markets ranging between $600-$800 per square metre for prime space, although best-in-class assets are now seeing rents exceeds $1,000 per square metre.

Knight Frank associate director Marco Mascitelli said tech, creative and education industries are driving demand, with tech occupiers accounting for an average 35 per cent of deal activity each year for the past five years in the city fringe, much higher than in the CBD, at 18 per cent.

“A recent example is AfterPay’s pre-commitment to 3,700 square metres at IP Generations Brewery Central Park development,” Mascitelli said.

He added that with the limited opportunities for large-scale development outside the Central precinct, owners of properties in the city fringe are likely to upgrade existing assets as they seek to continue strong rental performance.

Joint head of Knight Frank’s South Sydney office Anthony Pirrottina said the pandemic had accelerated the trend of de-centralising office workspace, driven by staff wanting to work closer to where they live.

“This trend is particularly evident in locations such as Surry Hills, Redfern, Potts Point and Woolloomooloo which are inner-city areas that provide an opportunity to live, work and enjoy local amenities, all nearby,” Pirrottina said.