Sydney and Melbourne fringe markets outperforming
The AFR’s recent article, Values and rents surge in fringe Sydney and Melbourne office markets, reports that over the last year, Sydney and Melbourne’s fringe office markets have far out-performed their CBD counterparts when it comes to capital-value growth and rental growth, due to a movement by commercial property investors up the risk curve and towards more affordable, higher-yielding investments.
This trend is likely to continue as a result of ongoing strong economic conditions, with labour market indicators for NSW and Victoria particularly strong. In Sydney, it is also driven in part by a severe lack of space in the CBD, with ongoing withdrawals reducing the total available space for lease. Fringe CBD markets are also seeing much larger rental increases and bigger contractions in yields.
Sydney’s Parramatta area, for example, saw a 36.8% rise in capital values, Macquarie Park 27.3%, and North Sydney 20%, against the CBD’s much weaker 14%. Melbourne tells a similar story, with the St Kilda Road office market experiencing 19.3% against just 6.4% for the CBD.
Rents have also risen far more in fringe markets, with net effective rents growing 24.5% in North Sydney and 22.9% in Parramatta, but just 10.4% in the CBD. And 22% in St Kilda Road, Melbourne against 11.8% in that city’s CBD.