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NSW reduces office leasing in the Sydney CBD saving $80 million

December 20, 2018

Governor Macquarie Tower was too expensive for NSW. Photo: Louie Douvis

Luke Housego and Su-Lin Tan

The NSW government has cut down its premium office tenancy footprint over the past five years, achieving savings of about $80 million.

The savings also come from the government’s reduction in core Sydney CBD leases by about 70,000 square metres as it decentralises its offices.

It plans to reduce at least 100,000sq m of CBD office rental by 2021 and has been relinquishing rental space since 2011.

The government, like many businesses, is not spared from rising office rents in the Sydney CBD, which are experiencing record low vacancy, forcing it to rethink its mix of leases and moving many of its offices to A-grade buildings in the southern end of the CBD from premium grade offices.

The state gave up a premium lease at the high-end Governor Phillip and Macquarie Towers at 1 Farrer Place and moved to lower grade locations such as 320 Pitt Street and 680 George Street.

For existing CBD leases, the state’s property division Property NSW said it had also been negotiating new below-benchmark lease terms to reduce rental costs. Market level incentives were also included in the deals.

State’s largest tenant

The government’s CBD portfolio is now paying 30 per cent below the JLL Prime Industry Benchmark. In 2014, it was paying about 15 per cent above the benchmark.

“Every dollar saved in effective portfolio management is a dollar that can be spent on service delivery, including new schools and hospitals,” Mr Newman said.

The NSW government is the state’s largest tenant, occupying more than 1 million square metres of office space across metropolitan and regional NSW.

The Sydney CBD office vacancy fell again to 4.6 per cent in the September quarter, according to a recent update by Savills, and is expected to fall to just 3 per cent by the end of 2019, BIS Oxford Economics predicts.

As a result of the space problem many companies will be forced to move staff not just to Sydney’s fringes such as Parramatta or Macquarie Park but to Melbourne or Brisbane.

A-grade office rental has surged again by 8.7 per cent in the past 12 months with net annual rents as high as $1800 a square metre.

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