Sydney’s fringe office leasing market is likely to be one of the few winners from the COVID-19 pandemic, property experts believe.
Many companies have to keep their head offices in the CBD to preserve status as a main player and to service their clients face-to-face, but they’re now rethinking their strategies on everything else.
“What we’re seeing from traditional CBD-based clients is that they’re looking for different and cheaper premises for their back-of-house functions,” said Rob Gishen, director office leasing at Colliers International, specialising in the south Sydney market.
“So they’re taking advantage of cheaper rents outside the CBD to relocate parts of their business, like shared services, finance, call centres and other functions to alternative locations.”
South Sydney, especially those areas between the airport and the CBD, has become a favourite option, but many are also looking for areas further out that may offer better value.
“Macquarie Park offers the best value,” said George Harb, Cushman & Wakefield’s NSW head of metropolitan office leasing. “The biggest issue there in the past has been lack of amenity but that’s rapidly changing with so many new developments changing the landscape.”
Many fringe and suburban markets have seen rents grow by 25 to 30 per cent in the past three to four years, off the near 50 per cent growth in CBD rents, Mr Harb says.
So how do these markets compare?
Office rents in the city’s immediate fringe suburbs such as Surry Hills and Pyrmont had jumped markedly in the past two to three years, said Brendan Shipp, CBRE’s director office leasing Australia. “Boutique refurbished property can start at $800 [per square metre per annum] and around Foveaux and Holt streets can be close to $1000,” he said.
“It’s all relative. There are a lot of amenities in those areas and they’re competing with the city at $1000 to $1300 net.”
Based on Colliers International’s estimates, vacancy in A-grade office accommodation was very low in these fringe areas at 2.6 per cent, or 5780 square metres out of total A-grade stock of 221,812 square metres, said Louise Rowe, national director office leasing Colliers International.
Nick Lau, director, head of office leasing Knight Frank, Sydney South, said he didn’t expect much to change with the pandemic. “This area has a high footprint of the creative, technology, and education industries, with progressive work environments, including sophisticated flexible working policies and [they] are already familiar with remote working,” he said.
North Sydney provides an attractive value proposition to prospective occupiers for cost versus the CBD, as well as for those looking to split business operations, says JLL’s head of North Sydney office leasing Paul Lynch. “Travel time to the CBD will be improved by the new Victoria Cross metro station,” he said.
“There is limited prime-grade contiguous space within the market despite vacancy sitting at 8.5 per cent as at 1Q 2020, although a number of new developments completing over 2020 and beyond will assist.”
CROWS NEST/ST LEONARDS
Here, there’s a 7 per cent vacancy, and 21,568 square metres of office space free, but A-grade opportunities are limited, says Colliers’ Ms Rowe. The new Sydney metro and fast travel times will make it more popular.
“Leasing activity mostly comes from smaller organisations, but also those in the healthcare and social assistance sectors who are looking to leverage off the Royal North Shore Hospital and new related office developments in the immediate area,” said JLL’s Mr Lynch.
NORTH RYDE/MACQUARIE PARK
Some of the beauty of this area is that there’s a wide variety of stock on offer, says Mr Gishen. “As well as new stock, with A-grade around $440 [per square metre a year], you can also get dingy, old stock for as low a price as $300 gross. There are some companies who’d be happy with that.”
Vacancy in this precinct is at its lowest on record, at 4.4 per cent or 37,753 square metres out of a total stock of 859,034. “But these are the most affordable office markets in Sydney, offering good quality A-grade accommodation at a considerably lower rental, from $380 to $420 net, than any other Sydney office market,” said Ms Rowe.
This is also offering great value for money now, says Mr Gishen, especially as there’s so much amenity around. On the downside, there’s a sub-zero vacancy rate.
“But there’s a lot of development happening and 170,000 square metres more space will come online by 2022, although 120,000 of that is pre-committed.” Rents are currently $620 to $650 net for new A-grade and existing A-grade is $570 to $600 net.
The area around Alexandria, Green Square and Mascot is also a favourite of CBRE’s Mr Shipp. “I think Mascot is very good value personally,” he said. “It’s a suburb with stations and only six to 10 minutes away from Central and Town Hall, with existing A-grade at $430 to 460, new around $550 net, and B [grade] at $375, and it’s great when compared to product much further out like at Rhodes.”
Collier’s Mr Gishen said from the airport to Mascot there was a lot of A-grade space priced at between $460 and $480, maybe a total of about 6000 square metres, but a low vacancy rate of 2 per cent.
“But there’s a lot of approved DAs waiting for tenants to pre-commit, as there’s not much speculative building going on, especially with COVID-19,” he said. “I think it’s been the most untapped market in Sydney as there’s a lot of employment between the CBD and the airport.”
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