Interest in office markets outside of the city centre is surging as Sydney CBD office rents continue to climb, driving metropolitan councils to ramp up investments in creating workers’ precincts.
While premium net face rents in the Sydney CBD are sitting at $1025 a square metre – and are among the fastest growing in the world – the equivalent cost in North Sydney, Macquarie Park and Parramatta is $740, $360 and $475 respectively, Colliers International data shows – giving office occupants an incentive to look further afield.
Daniel Kernaghan, JLL’s NSW head of leasing, said the significant long-term cost savings coupled with the tightening vacancy rate in the Sydney CBD are the main factors behind the shift.
“The markets on the north shore and Parramatta are running at a discount and in some cases, a significant discount to that of the CBD. We’ve had such strong rental growth in the CBD over the last three years that it is making those markets look very attractive from a value proposition,” he said.
Law firm Herbert Smith Freehills is relocating part of their team from 161 Castlereagh Street in the city to Talavera Road, Macquarie Park, a plan the group’s chief executive officer Mark Rigotti described as an “unquestionable business case”.
“The per-metre cost saving is materially significant,” he said in a statement.
And Allianz’s IT division will move out of their Market Street home into four floors at 101 Miller Street, North Sydney, in 2020.
These moves point to an office deconsolidation trend, and Mr Kernaghan noted that there will be more centralisation into the satellite CBDs of North Sydney and Parramatta.
“What we do believe is we’ll see more hub-and-spoke models; that is large occupiers in the CBD moving parts of their business out to the likes of Parramatta or outside of the CBD.”
Office tenants have squeezed vacancy rates in the Sydney CBD to a decade-low of 4.6 per cent, Property Council of Australia data shows.
Not just the building that counts
Mr Kernaghan said that improved environments for workers in areas outside of the city centre had propelled the move, thanks to councils and developers working together to provide public spaces and amenities for office occupiers.
“North Sydney and Parramatta have been really active in getting out there and working with the developers and the owners to get that outcome for their occupants,” he said.
Savills’ sales director Aaron McLean, who focuses on Sydney’s north shore market, said apart from the cost factor, office occupiers want to get more bang for their buck.
“Tenants are looking for more than what a building can offer, they are strongly taking into account particular fringe suburbs and what its retail precinct has to offer, easy access to transport (and) reasonable parking facilities,” he said.
North Sydney Council’s director of city strategy Joseph Hill said tens of millions of dollars are being poured into the council’s public domain strategy to “enhance its significance in the global economic corridor and make it a more inviting space for workers, residents and visitors”.
“North Sydney Council is currently working to amend planning controls, including increases in building heights, removing floor space caps and amending several ‘special areas’ within our CBDs,” he said.
One of the projects includes the recently completed $7 million redesign of Brett Whiteley Place in North Sydney’s CBD, which includes street lights activating nightlife, an amphitheatre and events space. The council has also proposed converting the Ward Street car park – bordered by McLaren, Berry and Miller streets – into a pedestrian-friendly open plaza.
In the nearby St Leonards CBD, two mixed-use developments at 100 Christie Street and 617-621 Pacific Highway will deliver a multi-purpose arts centre and innovation hub through a voluntary planning agreement, which is made between a planning authority and a developer.
A similar situation can be seen in Parramatta, where amenities are being improved to attract office tenants and capture the spending of local workers. Major joint council and developer projects include the Parramatta Square precinct, Civic Link and the opening up of the Parramatta River foreshore.
“Council works closely with private developers to ensure that new development contributes to, and improves the amenity of the city,” a Parramatta Council spokesperson said, adding that they were focused on making the Parramatta CBD a destination in its own right.
Savills senior analyst Houssam Yakzan said the NSW government’s decentralisation policy set in 2014 had driven the bulk of Parramatta’s leasing demand.
“Infrastructure investment towards improving accessibility to the market is likely to promote others outside the public sector to make a similar move away from the rapidly growing rents in Sydney’s CBD,” he said.