Sydney Fringe Office Records Lowest Vacancy in a Decade

Sydney’s fringe office markets have recorded their strongest vacancy rates in more than a decade as the nation’s key capital city markets continue their climb out of double digit vacancy and inflated incentives.

The falling vacancy is driving growth in net effective rents and with the State Government’s announcement of registered projects totalling $390 million in Parramatta last week and Winten Property Group’s acquisition of a development site at 1 Denison St, North Sydney, developers are taking notice.

According to Savills Senior Analyst Research & Consultancy, Houssam Yakzan, average prime net face rents have increased by around 8 percent in North Shore markets and 7 percent in Parramatta, with corresponding falls in incentives.

The combined North Shore vacancy, including North Sydney, Crows Nest/St Leonards, Chatswood and Macquarie Park-North Ryde stands at 7.2 percent, the lowest since the 5.3 percent figure recorded in 2001.

Of the individual North Shore markets, North Sydney and North Ryde/Macquarie Park recorded their lowest vacancies since 2012, Chatswood since 2007 and Crows Nest/St Leonards since 2001, but the standout performer has been Parramatta which recorded its lowest vacancy in 25 years at 4.5 percent – the only lower vacancy recorded was 2.6 percent in January 1990 – including zero vacancy in A Grade.

At 4.5 percent, Parramatta has the lowest rate of any major fringe market nationally just ahead of Melbourne’s Southbank at 4.6 percent. The historically very tight and much smaller East Melbourne market recorded the lowest rate at 1.5 percent.

Mr Yakzan said in the 12 months to June, Savills had identified 73,781 square metres of leasing activity in the North Shore market, up 49 percent on the 12 months prior, while 43,977 square metres of leasing was recorded in the Parramatta market, which was down 32 percent due to the limited availability of space.

Savills Director Office Leasing, Simon Van Grootel, said while there was no doubt the Sydney non-CBD office markets had picked up over the last 12 to 18 months, withdrawals for the compulsory metro rail acquisitions, residential and hotel conversion, and the lack of new supply, were key contributors to the lower vacancy rates.

He said more than 42,500 square metres of stock had been withdrawn from the North Shore market alone in the 12 months to June and further withdrawals were already slated for 2017.

“Vacancy rates have fallen across the board, indeed Parramatta has a zero vacancy in A Grade, and that is very pleasing, indicating perhaps the strongest market we have seen post-GFC.

“That has seen rental growth and incentives decline and those factors along with continued withdrawals and continued falls in vacancy are going to drive new construction but in the current market, that is likely to require pre-commitment,” Mr Van Grootel said.

He said while the State Government had revealed $390 million of registered office projects for Parramatta this week, neither those projects nor any currently underway would impact vacancy in the short to medium term.

“Vacancy is going to continue to tighten and that is going to mean that businesses seeking expansion space and/or large floorplates, may need to commit to opportunities earlier or risk having to make compromises including being forced to move.

“In the absence of new stock, refurbishment of B Grade stock, particularly in Parramatta, may also stack up for some landlords,” Mr Van Grootel said.

Mr Yakzan said of 220,000 square metres of new commercial development in the Parramatta market, 155,000 square metres was subject to pre-commitment and the remainder was already leased.

Parramatta is the fifth largest suburban office market in Australia with 682,469 square metres of stock while the combined North Shore market totals 2,288,399 square metres including North Sydney (792,482sq m), Crows Nest/ St Leonards (333,631sq m), Chatswood (278,919sq m) and North Ryde/ Macquarie Park (883,367sq m).