Blog - TGC News
TGC CONNECT | JUNE 2018 MARKET WRAP
The end of the financial year is fast approaching. So, let’s take a look at how the Sydney commercial real estate sector has performed over the past 12 months and at some key trends impacting the market.
The average rental rate for A-Grade spaces in the Sydney CBD has increased by more than 12% over the past year. This makes CBD rent the highest in Australia, averaging about $1,180 per square metre and providing rental yields of about 5%. Rent for B-grade office space in Sydney CBD equates to around $1,000/m2, offering a similar 5% average yield.
In the broader Sydney office market, A-Grade premises in Parramatta have been the standout performers, with average rent increases of more than 15% during the last year. Rent rates in Parramatta for A-grade office space average about $635/m2, yielding around 5.5%. B-grade office premises in the area are currently approximately $550/m2, with an average yield of just over 6%.
North Sydney has been another consistent performer in the office sector. Here, average rental rates for A-Grade space have increased by about 10% to just over $900/m2, providing a yield of approximately 5%. Rates for B-grade premises are hovering around $800/m2 and yield about 6%.
The average capital growth rates for Sydney office space have also been impressive. Parramatta has been the best-performing area with growth rates of more than 30%, followed closely by Macquarie Park (just under 30%), North Sydney (about 20%) and the CBD (around 10%).
A-Grade office premises in the CBD are the most expensive in Australia, currently having an average sales value of about $20,000/m2. Comparable North Sydney office space averages just under $15,000/m2, followed by Parramatta (just under $10,000/m2) and Macquarie Park (about $7,500/m2).
Vacancy rates in the Sydney office market are as follows:
- Sydney CBD: just over 4% (well below the national CBD average of 10%)
- North Sydney: a little under 8%
- Parramatta: about 3%
- Macquarie Park: about 6%.
There has been a slight decrease in office stock availability in the Sydney CBD and Macquarie Park areas, while levels have remained reasonably constant in both North Sydney and Parramatta.
Trends affecting the commercial real estate market
Emerging trends that are likely to continue impacting the Sydney office market include:
1.The increasing demand for coworking spaces
Coworking spaces allow independent people and businesses to network and share office space on very flexible terms. The demand for more flexible workspaces and working arrangements is increasing globally.
Australia is following this trend, and coworking is disrupting the traditional commercial office space leasing market in many ways.
For instance, there is increasing pressure being placed on vacancy rates and rental yields, as the supply of coworking spaces rises to meet the growing demand.
Co-working arrangements are also increasingly in high demand by tenants looking for shorter-term, more flexible leases. Strata owners, in particular, must face this coworking disruption.
2.Reduced Asian investment in the market
Asian investment in Australian property (mainly from China) has been impacted by tighter regulations imposed in recent years by Australia’s Foreign Investment Review Board and the Chinese Government.
Australia’s foreign investment restrictions tightened in response to growing public concerns over foreign ownership of Australian property, including both commercial and residential. And this has resulted in foreign investment in the Australian market decreasing in both sectors.
How we can help
We have over 25 years of experience in leasing and selling commercial property in Sydney. Contact our team if you’re looking to lease, buy or sell commercial real estate or need someone to manage your commercial property.
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