Sydney's office backlog: businesses join waiting list for vacant space

Active industry groups seeking space in the CBD include those in financial services, business services, government, IT and technology, property services and coworking, according to Jock Gilchrist, Colliers International’s national director of office leasing.

Companies currently active with larger requirements include Salesforce seeking 20,000 to 25,000 square metres, Commonwealth Bank with a requirement for about 20,000 square metres and State Street for 8000 to 12,000 square metres.

Mr Gilchrist attributes the pent-up demand in the Sydney CBD to a continued lack of larger areas of contiguous space.

“Larger occupiers simply do not have relocation options available to them,” he said.

But Paul Badenhorst, CBRE’s regional director of advisory and transaction services – office leasing, noted that inquiries for Sydney CBD had “visibly slowed” from the start of 2019.

“After three years of consistently strong rental growth, and weaker GDP performance, we are finding tenants being notably cautious, which would indicate that demand may be held back until there is more availability in the market, and tenants perceive fair value in the options available to them,” he said.

In North Sydney, however, there is “more demand and less options” available to tenants specifically for businesses searching for single-floor spaces in 2019, said Louise Rowe, national director of office leasing at Colliers International.

“A number of major tenants have renewed their existing accommodation in the past 12 months – such as Equifax, CCA and Genworth – due to limited options available within the market,” she said.

“The North Sydney A-grade market will be tight throughout 2019, before a new amount of supply will enter the market in 2020.”

Tenants turning to the west are not feeling relief in Parramatta, either.

Stephen Panagiotopoulos, director of advisory & transaction services – office leasing at CBRE, said despite Parramatta’s market forecast to expand by 40 per cent thanks to new developments, it was not enough to keep up with demand.

“The development pipeline should bring relief to the current low vacancy of 3 per cent, however the popularity of NSW’s second CBD is seeing demand outstrip supply well into late 2022,” he said.

More than 8000 square metres have already been leased in Parramatta this year, according to Alan James, director of office leasing at Colliers International.

Office spaces smaller than 300 square metres and bigger than 2000 square metres in Parramatta are experiencing the greatest unmet demand, he said.

“Demand has been very high from sub 300-square-metre tenants in 2019. They are choosing to either renew in their current accommodation or move into C or D-grade buildings,” he said.

“For tenants wanting to move into over 2000 square metres in the next two months, there are no options available to them.”

Knight Frank’s head of NSW office leasing Aaron Weir said he had seen an overall increase in companies opting for a decentralisation strategy, looking to move non-client-facing operations into suburban locations to cut costs.

“On the back of unfulfilled tenant demand requirements in 2018, there appears to be good transactional momentum in the first half of 2019, interestingly led by fintech [companies] looking for larger contiguous space options,” he said.

“The recent news that the owners of 60 Martin Place had signed three new tenants, with the high-rise floors topping out at $1800 per square metre net face, suggests that there is increasing competition for large, premium, high-rise floor plates in central locations that are struggling to be fulfilled within existing available supply.”

Tenants currently seeking options in North Sydney include UGL Group, in the market for 7500 square metres, and Microsoft, searching for 10,000 square metres, according to Mr Weir.

The Parramatta market also has several large requirements, including the NSW government looking for 45,000 square metres; Westpac, seeking 10,000 square metres; Samsung, which wants 13,000 square metres; and Link Market Services, needing 20,000 square metres.

JLL’s head of leasing for northern Sydney Paul Lynch said the industry base was diverse across all markets.

“Recently, there have been a number of financial services sector inquiries, due to inherent industry growth and also to align with the recommendations of the recent Hayne Royal Commission report,” he said.

The NSW government’s continuing decentralisation of its departments was contributing significantly to the overall take-up, he added.

“Unmet demand continues to grow across all markets due to a continued lack of new supply and refurbished stock. Further, stock is being removed from the market for redevelopment and exacerbating the supply shortage.”