CI Australia CEO Andrew Hunter suggests it's time we started focusing more on Sydney's Metropolitan office markets, and the opportunities these evolving precincts can provide for tenants and investors.
Parramatta is no longer just Sydney's second CBD. It is a strategically important and significant centre of Sydney, and its growth continues to play a large role in the evolution of not just Western Sydney, but broader Metropolitan Sydney.
Infrastructure investment, office and residential developments, and overall state population growth have and continue to drive people to live, work and play in the thriving Parramatta we have today - one that is almost unrecognisable to the Parramatta of some 10 years ago. In fact, its total stock pool is also on track to outpace the once dominant stock pool of Macquarie Park and North Ryde. It's exciting to see such growth, and the enlivened discussions at the PCA's Office Market Breakfast earlier this year - the first to take place in Parramatta and to hero that market itself - show how deeply invested we all are in the success and future of Parramatta.
But what I also find interesting is the current state of Sydney's broader Metropolitan office markets – by which I mean the North Shore, Inner West, City Fringe, South, North West and South West and West. Particularly, how these markets stack up against Sydney CBD when assessed together as one ‘Metropolitan Market’, and the story this tells for the future opportunities for tenants and investors.
It is true that the two markets are not fully comparable in amenity, connectivity or scale, particularly when vacancy in the CBD is at an unprecedented low of 4.6%. However, perhaps by understanding the somewhat ‘less talked’ about precincts in these metropolitan and suburban areas, we can better understand the opportunities and challenges faced across Sydney’s broader office markets. And I believe this contributes to our industry being able to ensure we’re helping tenants and investors find their fit in the market – whether it’s for the short, medium or long-term, even more important when there are high levels of investment, technological and societal change.
Interestingly, when we look at the total combined office stock in the ‘Metropolitan’ market, there is more than six million square metres – greater than 20 percent higher than the total stock in Sydney’s CBD. This lead remains even when North Sydney is removed from the equation, although doing so does drop it to a more modest increase of 6.4 percent more stock.
It's also worth noting that stock has been on the rise despite Sydney’s previously booming residential markets, with the Metropolitan area recording a 16% increase in total stock over the period from January 2005 to July 2018. Meanwhile, the Sydney CBD recorded total stock growth of 9.1% over this period. Both office markets have continued to grow despite the significant residential conversions and withdrawals, which have of course been condensed in the CBD. Rents have grown too in the Metropolitan market, with the strong transport and retail offerings in not only Parramatta but North Sydney and Chatswood having driven growth in rents, at a higher rate.
It is these strong transport hubs and retail precincts that have and continue to make the North Shore a compelling destination for the market. And the numbers speak for themselves, with almost 80% of the current total stock in the Metropolitan market concentrated on the North Shore, and to a lesser extent in the Western regions.
However, it will be interesting to see if the introduction of a ‘third city’ by the Greater Sydney Commission brings changes to this stock dynamic. It is clear there will be ongoing investment into housing, commercial and transport developments across Sydney, and this could well bring changes to the profile of each office market, including the types of businesses owning and leasing, and a diversification of residents and workers, including a potential increase in full-time knowledge workers in these areas. Change could be further stimulated by the development of the North West and South West of Sydney - precincts that have now for some time been identified as growth areas by the NSW Government.
Will the emergence of these “vibrant, attractive and well-connected communities” - as the Government aptly describes them - see areas such as the North Shore and Parramatta need to become more competitive when seeking tenants, investors and residents? We’ve already seen some diversification take place in Macquarie Park, for example. It’s no longer occupied by just strictly pharmaceutical and technology research companies, with new tenants now assessing it as the viable destination for their business that it may not have been previously.
Sydney’s commercial office markets have a bright future across the board and perhaps it is change that will be the only constant. But what is for sure is that there is a real buzz in the industry and commitment to how we successfully move forward, adapt and thrive.
CEO, CI Australia