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TGConnect March 2019 Market Wrap
The first quarter of 2019 has flown by. Here’s the current state of play in the Sydney commercial office market.
Average gross rental rates for A-Grade office premises in the Sydney CBD are by far the highest in Australia. At 1,270/m2, they easily exceed the average rates of Australia’s second most expensive CBD market (Melbourne, $780/m2).
However, Sydney CBD net rental yields are currently just under 5%, which is slightly lower than what you can get in the CBD markets of Australia’s other major capital cities:
- Melbourne 5%
- Brisbane 5.9%
- Canberra 6.25%
- Perth 6.9%
- Adelaide 7.25%
B-Grade CBD gross office rent rates are averaging $1,100/m2, which again is far higher than the rates for comparable premises in other Australian capital cities.
In the broader Sydney office market, the average gross rental rates and net yields for A-Grade space are:
- North Sydney $980/m2, yielding 5.25%
- Parramatta $670/m2, yielding 5.5%
- Macquarie Park $485/m2, yielding 5.75%
Capital values might be falling in the Sydney residential property market, but that’s not the case in Sydney’s commercial office market. Capital growth rates of about 15% have been achieved for A-Grade office space in North Sydney over the past 12 months, followed by Parramatta (11%), and the Sydney CBD (6%). Values have remained flat in the Macquarie Park market.
Vacancy Rates and Stock
The generally strong rent and capital growth rates being achieved in the Sydney office market are being driven by low vacancy rates and generally low stock availability.
Vacancy rates are currently:
- just over 3% in Parramatta.
- about 4.5% in the Sydney CBD (well below the national CBD average of about 9%).
- just over 6% in North Sydney.
There has been a slight decrease in office stock availability in the Sydney CBD, North Sydney and Macquarie Park markets over the past 12 months, and a slight increase in Parramatta as that market continues to redefine itself as “Sydney’s second CBD”. Pockets of smaller suites are becoming more prevalent as landlords seek to get them leased.
Strong employment levels should continue to fuel both tenant and buyer demand for office space in the Sydney commercial office market in 2019. Other trends that will continue to have an influence on the market include:
- Continued demand for flexible co-working spaces as the work environment continues to evolve. We maintain that strata owners should take steps in order to compete with this competitive threat.
- Reduced Asian investment. The Foreign Investment Review Board has imposed tighter restrictions in recent years. Nevertheless, Asian investors, particularly Chinese investors, still have eyes on the Australian commercial real estate market.
It will also be interesting to see the effects on the commercial real estate market if Labor wins the election and moves to abolish negative gearing by January 1, 2020.
How TGC Can Help
Our team at TGC has over 25 years of experience in the Sydney commercial office market. We can help you to buy, sell, lease or manage your commercial office space.
Contact us today to find out how we can help you!
Source: Statistics for this article were sourced from savills.com.au/research