Spotlight on Sydney’s Commercial Office Market

July 3, 2019 | Commercial Real Estate

Image of Sydney Harbour at sunrise | Spotlight on Sydney article

Sydney’s commercial office market has slowed down over the past year, after years of unprecedented growth. Let’s take a closer look at what happened last financial year, and at three encouraging trends that are working in tenants’ favour.

Rental rates

Average rental rates for A-Grade spaces in the Sydney CBD have increased by about 8%, which is lower than the double-digit increases of previous years. Expect to pay an average of about $1,270 gross per square metre – by far the highest rate in Australia. B-grade CBD office premises now sit at an average of $1,100 gross per square metre.

North Sydney has also seen an average rise of about 8% for office digs during the past 12 months. A-Grade premises there will now set you back (on average) about $975 gross per square metre, and around $855 gross per square metre for B-Grade suites.

Macquarie Park is significantly cheaper at around $485 gross for A-Grade premises. The Macquarie Park market was affected over the past year by the temporary closure of the Epping to Chatswood railway line between September 2018 and the end of May 2019.

The track was upgraded to the Sydney Metro System, and about 20,000 people who regularly used this train service had their travel disrupted for eight months.

Further out, comparable A-Grade space in Parramatta has increased by about 5.5% over the past year. However, average rental rates are still much cheaper, at around $670 gross per square metre. Expect to pay about $580 gross per square metre for B-Grade premises.

Image of a girl standing on a platform of a Sydney train station | Spotlight on Sydney article

Vacancy rates

Vacancy rates in the Sydney office market gave remained low compared to national averages. Here’s a quick snapshot:

  • Sydney CBD:  about 4.1% (well below the national CBD average of over 8%)
  • North Sydney: about 7%
  • Macquarie Park: about 5%
  • Parramatta: approximately 3%.

Stock

Stock availability has declined slightly over the last year. The Sydney CBD, North Sydney and Macquarie Park have recorded slight decreases, while there has been a slight increase in Parramatta.

Three encouraging trends affecting Sydney’s commercial office market

  1. An imminent increase in stock

About $4.8 billion worth of commercial real estate projects are currently under construction in the Sydney CBD. And a further $3.1 billion worth of projects are scheduled to start.

These developments will dramatically increase the supply of office space over the next few years, helping to stabilise or put downward pressure on rental rates.

Here are a few of the many upcoming developments:

  • Circular Quay Tower, 33-35 George Street
  • Wynyard Place, 285-301 George Street
  • AMP Centre Tower, 50 Bridge Street
  1. Continuing rise in demand for co-working spaces

Like most countries around the world, the demand for co-working spaces is increasing in Australia. And this trend shows no signs of slowing down.

Coworking spaces allow independent people and businesses to network and share office space.

They’re convenient for small businesses, start-ups and the growing number of independent contractors because memberships allow for shorter-term, more flexible leases.

Even larger organisations are jumping on the coworking bandwagon as a means of staying flexible and on top of the competition in terms of innovative new products and ideas.

  1. The market is shifting in favour of the tenant

The cost of renting office space, particularly in the CBD, means that more commercial tenants are choosing to optimise their existing or sublet part of their space instead of relocating and signing a new lease.

This has flattened commercial leasing activity and increased the amount of vacant space. Landlords are also being pressured to increase incentives so as to attract high-quality tenants.

You can read more about the pros and cons of commercial subleasing here.

More and more commercial tenants are also finding city fringe suburbs, like North Sydney and Surry Hills, more attractive than the CBD because they are cheaper and still highly accessible. This has lead to a tighter vacancy rate and higher rental rates in these areas.

Image looking from The Rocks out towards Sydney suburbs | Spotlight on Sydney's commercial office market

Tenant Representation Sydney

Tenant CS is a commercial tenant advisory service that offers tenant representation services in Sydney. We can also cater to businesses across Australia, with a particular focus in Melbourne, Perth, Adelaide, Brisbane and Canberra. 

We represent you, the tenant, and our in-depth knowledge of the commercial office market gives our clients a competitive advantage when it comes to finding a space or negotiating a commercial lease.

If you’re on the hunt for tenant representation services in Sydney, get in touch with our team today!

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The Author

Francois is a highly skilled tenant representation specialist, who brings a wealth of experience across various real estate markets. He manages the tenant representation team in Sydney team.

Francois has a Masters in the Science of Management from Montpellier Business School (France) and a Bachelor (Hons) in Business Studies from De Montfort University (UK).

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