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Suburban offices in Sydney are in hot demand

SMH online_Suburban offices in Sydney are in hot demand_2016_02_27

An artist’s impression of the new CBA building at ATP

Tenant demand for office space has seen a resurgence in occupancy across the suburban markets, according to agents and buyers.

DEXUS Property has been one of the most active with DEXUS Wholesale Property Fund that will each
acquire a 50 per cent interest in 90 and 100 Mount Street in North Sydney for an initial
acquisition price of $41 million.

A new premium office tower will be developed at the site by DEXUS and the project will be completed
at a time when tight supply fundamentals are expected in the Sydney office market.

Darren Steinberg, DEXUS’ chief executive, said the time was right to look at the suburbs given the
forecast tightening of space in the Sydney city.

“This development is set to benefit from improved amenity in the North Sydney market, including the
proposed Sydney Metro line, as well as continued tenant demand for quality product in a market
which has limited prime grade options,” he said last month. “The project is also expected to be
completed at an opportune time in relation to Sydney office market supply fundamentals.”

According to Knight Frank, Sydney’s suburban office vacancy rate has fallen to just 6.4 per cent,
down from 8.1 per cent a year earlier, thanks to a combination of negative net supply and modest
positive net absorption.

This is its lowest since its Sydney suburban office market overview series began in 2008.
Residential development activity continues to have a major bearing on suburban market stock levels,
with the 30,479sq m of gross office supply during 2015 being significantly offset by 77,599sq m of
stock withdrawals.

Luke Crawford, Knight Frank’s NSW senior research analyst, said that while net absorption remains
positive, tenant demand across Sydney’s suburban market remains relatively modest when compared to
NSW employment growth of 4.7 per cent over the same period.

“The catalyst for this has been tenant outflow to Sydney’s major office precincts including the
CBD, Macquarie Park and Parramatta where favourable incentive levels and the availability of larger
floor plates have provided the impetus for outbound movements,” Mr Crawford said. “The flow of
investment activity outside of Sydney’s CBD and major metro markets has continued with sales
volumes ($10 million+) in the Sydney suburban market totalling $1.35 billion in 2015,” he said.
According to James Parry, Knight Frank’s Head of Institutional Sales, Australia: “An increasing
number of buyers are becoming priced out of other markets; so we are seeing a growing number moving
up the risk curve by investing in suburban core plus assets.

“This trend has been most prevalent amongst offshore groups who accounted for 31 per cent of 2015
sales (by volume), well above the five-year average of 10 per cent,” Mr Parry said.
“A high proportion of suburban office sales have also consisted of either development
assets/opportunities (such as the largest Sydney suburban office sale in 2015, the Australian
Technology Park at Eveleigh for $263 million, by Mirvac, AMP and Centuria, and 100 Harris Street at
Pyrmont) or residential conversion opportunities as recent house price growth and rezoning changes
have slanted the ‘highest and best use’ of sites towards residential rather than commercial use
(such as The Compass Centre at Bankstown and 43 Bridge Street, Hurstville).”