Sydney suburbs where office tenants should look for value
Ballooning office rents in the CBD and fringe areas are making Sydney’s metropolitan suburbs an appealing alternative for businesses looking for space and value.
With Sydney CBD’s vacancy rate at just 4.1 per cent and prime net face rents up almost 12 per cent to $1110 a square metre in the past 12 months, according to Knight Frank data, occupants have good reason to look beyond the city centre.
Aaron Weir, Knight Frank’s partner and head of NSW office leasing, said the surge in office rents was not limited to the CBD.
“We are seeing a convergence of rents in the fringe markets and Sydney CBD, with key suburbs such as Surry Hills and Pyrmont surpassing rents of $750 per square metre per annum net,” he said.
He noted that businesses wanting to save on rents while still being close to the city could consider North Sydney. Average net face rents in this office market are $698 a square metre and there is more vacant space than the CBD, with the proportion at 6.8 per cent.
“North Sydney remains an attractive option for tenants, as rental levels remain materially less than financial core CBD on a like-for-like basis,” Mr Weir said.
And, in good news for tenants, there has been a decrease in the time it takes to secure a new office in North Sydney, Mr Weir said.
“When analysing active requirements for sub-500 square metres over the past 12 months, we observed on average a five-month lead-in time,” he said.
“This increases to around seven months for 750 to 1500 square metres and around 12 to 14 months for 1500 to 3000 square metres.”
However, rents are not anticipated to be much cheaper for long, thanks to incoming transport infrastructure.
“We can expect this gap [between Sydney CBD and North Sydney rents] to tighten over the coming years as the introduction of the Sydney Metro will contribute to North Sydney becoming an extension of the northern end of the CBD,” Mr Weir said.
Tom Mott, Savills’ NSW director of office leasing, agreed that North Sydney had become a viable alternative to the Sydney CBD.
“We have seen the likes of Chanel, Microsoft, Channel 9 and Citrix to name a few, choose North Sydney over the CBD,” he said, citing drawcards such as its transport connectivity, retail amenities, as well as health and fitness choices.
Mr Mott said the tenant market in North Sydney was becoming more competitive as new supply was limited.
“North Sydney will only have three office developments completing in 2019 and 2020, and it’s likely all three will be fully leased on completion,” he said.
He added that once these new developments are delivered, tenants will be limited to existing buildings that will undergo refurbishment such as 73 Miller Street and 5 Blue Street, as there will be a lag before the next wave of supply comes online.
Mr Mott said Herbert Smith Freehills, the head office of which at 161 Castlereagh Street was originally designed for 900 staff, relocated 230 staff to Macquarie Park as part of an innovation move, but ultimately to reduce costs.
But there are options beyond North Sydney for tenants hunting for value, JLL’s head of leasing for northern Sydney Paul Lynch said.
“The business parks such as Rhodes and Sydney Olympic Park and Macquarie Park offer A-grade accommodation at a more economical price point than that of the CBD,” he said.
“The larger facilities such as Commonwealth Bank’s Sydney Olympic Park buildings will now be offered to market as multi-tenancy office buildings.”
North Sydney delivers for Allianz
In August 2018, Allianz Australia moved nearly 500 of its IT employees from three buildings in the Sydney CBD to a newly designed office at 101 Miller Street, North Sydney.
For David Krawitz, chief operating officer at Allianz Australia, while the cost was one of the factors considered when relocating, it was the innovation focus and employee experience that was at the heart of the decision-making process.
“The core objective in this situation was to find a new office space which would meet the needs of our IT strategy, as well as our organisational shift to flexible, activity-based working,” Mr Krawitz said.
“We knew that in order to continue to evolve and grow the organisation’s IT capability, it was important to consolidate to one, central location that was designed for innovative collaboration.”
While the company considered other city fringe suburbs including East Sydney, Pyrmont and Redfern, they ultimately selected North Sydney because the building accommodated their design needs by supporting their shift to activity-based working, as well as the area’s accessibility for their IT employees.
Other criteria included the building’s grade and age, planned expenditure and the services and facilities provided by the building.
“We also always take into consideration the surrounding infrastructure, including transportation options, childcare facilities, shopping, restaurants, parking and of course the safety of our staff.”
